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'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.

Jeremy Naylor @JeremyNaylor_IG
Analyst, London

Publication date : 2018-06-18T16:31:00+0100

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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.

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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’.

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