Why the calm over interest rates might not last

Mark Carney is less than enthusiastic about the new economic decade, writes James Moore

Carney was careful not to put too much emphasis on blaming Brexit (PA)

From an economic perspective, the last decade ended with a whimper,” said the Bank of England’s governor Mark Carney at the Monetary Report press conference following the Monetary Policy Committee’s final interest rate decision with him in the chair.

“The question facing the MPC at this meeting was whether the new decade would start with a bang,” he continued.

You don’t need Carney to tell you that it hasn’t done that. But there have been enough mildly positive signs in the run-up to the MPC’s latest meeting for it to stand pat and keep interest rates at 0.75 per cent.

A good chunk of the market had been betting on a cut. Your correspondent was with them, at least in spirit.

Various members of the MPC (including Carney) had stoked the flames with dovish-sounding speeches beforehand.

With 131 central banks cutting against just 21 increasing over the previous year, the chances of the UK joining the party appeared good. While the excitement in those parts of Britain that get excited by these events might not quite have been at fever pitch, it was certainly a lot higher than usual.

The meeting was tagged as a biggie.

However, recent survey data has been encouraging, with some of the uncertainty that had plagued UK plc fading (the reprieve may be temporary). Ditto the indicators from the rest of the world, with an easing of trade tensions and the like. The words “finely balanced” had appeared in a lot of the pre-decision commentary despite the concerns about viruses in China that have caused the markets to start wobbling.

In the end the vote wasn’t so finally balanced as it was decisive. No change was favoured by seven to two. Carney even talked about modest monetary tightening, albeit maybe not for a couple of years, by which time inflation is expected to be moving towards the bank’s 2 per cent target.

The way he characterised the economy was “less a case of so far so good than so far good enough”. Hardly a ringing endorsement, but sufficient to make his exit a peaceful one. Governors tend to appreciate that. So do their political masters, and he has a shiny new special advisory role involving mobilising business and investors to support the net zero carbon project ahead of the UN climate change conference in Scotland later this year.

Carney was careful not to put too much emphasis on blaming Brexit for the UK’s economic woes, although the bank doesn’t appear to think much of the chancellor Sajid Javid’s ambition of boosting UK growth to 2.8 per cent, despite the fiscal stimulus he’s preparing to unleash.

Over the next three years it’s putting the number at 1.1 per cent. Prior to the financial crisis it was 2.9 per cent, afterwards it was 1.6 per cent.

While the world picked up steam, Britain remained stuck in the slow line. If the bank is right, it’s preparing to move on to the hard shoulder. Where on earth is the economic AA when you need it? It seems its vans have been transferred to more salubrious locales.

As for that “Boris Bounce” – maybe it should be a “Boris Bump”. There’s a chance of another exciting MPC meeting soon if it peters out.

Remember, too, that the bank’s downbeat forecasts are predicated on the UK securing a new trading relationship with the EU by the end of the year. In the absence of a deal all bets will be off, and the MPC’s meetings might get positively thrilling. Just not in a good way.