'Be wary’ of Carney’s statements

Former Bank of England policymaker Andrew Sentance spoke to IGTV’s Victoria Scholar about what to expect in terms of the central bank’s policy outlook. 

The Bank of England (BoE) is widely expected to keep rates on hold at its policy meeting on Thursday. In May, BoE governor Mark Carney said an interest rate rise in the next year is ‘more likely than not’, according to Channel 4 news. However, in an interview this week with IG ahead of the central bank’s rate decision, former BoE policymaker and current advisor to PWC, Andrew Sentance, warned that we should ‘be wary about Mark Carney’s statements’. He said the central bank has been ‘very slow to take action’, and ‘doesn’t have the confidence that actually small rises in interest rates won’t harm growth’. The longstanding monetary policy hawk argued that small interest rate increases could help growth by boosting returns to savers, giving support to the pound and taking the pressure off consumers.

When is the next hike?

While a hike is extremely unlikely this month, the market is currently pricing in a 49.4% chance of a rate rise in August. That would be likely to move the base rate by a quarter of a point to 0.75% from 0.50%. Sentance told IG he hopes ‘they seriously consider it’. His hawkish argument is that starting early with gradual rate rises will prevent sharper and more disruptive hikes later down the line.

Bank of England meeting

An in-depth look at the Bank of England’s MPC
announcement – including its role in shaping the UK
economy, and how this affects traders.


Who will replace Carney?

Mark Carney’s term as governor of the BoE comes to an end in just over a year, on 30 June 2019. This has raised questions about succession plans. Sentance said he would prefer not to have another governor from overseas, as he believes ‘it is very difficult for somebody who has not been familiar with the detail of the UK economy over a long period to come in and take such an important job’. Sentance told IG that he believes Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), is the strongest candidate. When asked if Sentance himself would be interested in the role, he responded ‘I’m not sure I am the flavour of the month’.

‘Not in a very strong position’ on Brexit

As Britain prepares to leave the EU next March, many political analysts are questioning the ability of the British government to land the UK with a good deal. Sentance is among the skeptical voices, and said there are major divisions in the government on key issues like trade, the single market and the customs union. He added that ‘the government is having to negotiate with itself as much as it is having to negotiate with the rest of the EU’.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.