LONDON (Reuters Breakingviews) - Bank of England Governor Mark Carney has been dealt some tough cards during his tenure. But right now, his hand could hardly be stronger. The economic and political stars are aligning in such a way that he will be able to raise interest rates in a couple of months’ time without giving critics much scope to complain.
The UK central bank left its key rate unchanged at 0.5 percent on Thursday. However, expectations of an increase at the next meeting in May were cemented after two of the nine rate-setters unexpectedly voted for an immediate hike. There are good reasons why a majority will opt for such a move less than two months from now.
To begin with, British consumer prices are rising at an annual rate of 2.7 percent. That is far enough above the central bank’s 2 percent target to justify a rate rise. But it is not so high as to risk damaging consumer demand as was the case in November 2017, when inflation hit 3.1 percent, its highest level in nearly six years.
It also helps that wage growth is finally picking up. Pay including bonuses rose by 2.8 percent in the three months to January compared with a year earlier, Britain’s national statistics office said on Wednesday. That was the biggest jump since 2015 and pushed inflation-adjusted wages into positive territory for the first time in nearly a year. A good-sized pay rise for public sector health workers should support this trend.
Nor will Brexit provide any immediate cause for delay. Carney has previously said the outlook for interest rates depends on how Britain’s exit from the European Union pans out. But this week’s agreement on a transition means little will change in practice until the end of 2020. Barring a breakdown in talks with the EU, the UK economy will avoid a sudden downturn this year. Carney may not get a better opportunity to play his cards.
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