Bank of England (BOE) Governor Mark Carney took markets by surprise after casting doubt on another interest rate hike in May. Speaking to BBC News on the sidelines of the International Monetary Fund meetings in Washington on Thursday, the BOE chief said interest rates were still “likely” to rise gradually.
Carney highlighted recent mixed UK data including drop in retail sales and said he didn't want to be "too focused on the precise timing" of an interest rate hike. "The biggest set of economic decisions over the course of the next few years are going to be taken in the Brexit negotiations and whatever deal we end up with. And then we will adjust to the impact of those decisions in order to keep the economy on a stable path," he said.
BBC economic editor Kamal Ahmed wrote that Carney "said that although people should be prepared for a possible rate rise this year, there was still a lot of data to consider before they needed to make the decision which will be announced on 10 May".
He added: "Listening to the governor, I sensed that he was a little more doveish on the possibility of an interest rate rise next month than he had been previously."
“It’s a clear acknowledgement by Carney that’s there’s been a deterioration in the data,” Vasileios Gkionakis, co-head of strategy research at Unicredit told Bloomberg “In terms of sterling, the risks are skewed to the downside, because the markets over the past couple of months have really jumped the gun, they’ve priced in a lot of aggressiveness in terms of BOE policy.”
Carney's interview sent the sterling tumbling by more than 1 cent against the US dollar during New York trading. The pound was down 0.8 per cent at $1.4085, and had dropped from a level of $1.42 just before Carney’s comments.
Earlier this week sterling reached its highest level against the dollar since the June 2016 Brexit vote. This largely due to traders betting heavily on another hike in the cost of borrowing coming in May, following last November's increase.