Bank of England governor Mark Carney has already faced accusations of behaving like the Grand old Duke of York and he will probably do so again should Britain’s central bank opt to keep interest rates on hold.
Since he joined the Bank in 2013, he has marched borrowers and savers up the hill with heavy hints about the imminent prospect of a rate rise, only to march them back down again. Last November’s restoration of 2016’s emergency rate cut hardly qualified as a major move, whatever the Bank said about its significance.
Until an interview with the BBC during the IMF spring meetings a fortnight ago, it seemed to be a racing cert that the Bank was finally ready to begin the long journey back to 3% and push the base rate from 0.5% to 0.75%. The markets were guided to expect action at a meeting of the monetary policy committee on Thursday.
And it wasn’t just Carney dropping hints. Almost every member of the committee who had previously blocked a rise had gone on the record arguing that the time for a rate increase was near at hand.
Speeches by external member Jan Vlieghe constituted the most startling intervention. During 2016 and much of 2017, the former hedge fund economist turned interest-rate setter was one of the most vociferous opponents of a rise.
His former brethren in the Square Mile considered him an arch dove who might never vote to increase rates, such was his downbeat view of the economy’s growth potential. Yet, towards the end of last year, he was one of the most optimistic proponents of the economy’s resilience and the likelihood of a rate rise.
Just as before, a moment of central bank exuberance looks like becoming a non-event – which is strange given Vlieghe’s reasoning for backing an increase last year. Then, he said that ultra-low unemployment, steady growth and the probable end to a long period of declining real wages was enough to justify tighter monetary policy.
None of those things has changed. Unemployment remains the lowest it has been since the 1970s, at 4.2%, and is expected to stay that way for the foreseeable future. Growth, as measured by the gross domestic product (GDP) data, is expected to show continued expansion with no prospect of a recession on the horizon. And inflation should decline this year, to leave consumer incomes in a healthier position.
There is no doubt that the prospect of wages outstripping inflation this year and next was a key element of Vlieghe’s and Carney’s argument.
And it looked as if their resolve would be stiffened by a piece of the Bank’s own analysis that argued Brexit was having a bigger effect than previously thought.
A tight labour market, denied its regular injections of overseas workers, would overheat more quickly than before, sending wages spiralling. It meant that a growth rate of more than 1.5% would now be considered inflationary – compared with the previous 2.5%.
Then came a slew of figures showing that the economy might struggle to achieve even 1.5% growth this year and next. Wage increases, which were supposed to become stratospheric, were stuck on the ground.
Surveys last week of the construction, manufacturing and services sector showed them all expanding, but at a snail’s pace.
If Bank of England officials were truly dedicated to the cause of higher rates – if only to have something to cut in the event of a downturn – they would see through the spring dip and press ahead.
So a reasonable conclusion must be that their hearts were never in the project – and that rates will stay low for a very long time.