Carney Says U.K. Economy Still Looks on Track for Rate Hike

(Bloomberg) -- Mark Carney has yet to see anything that would dissuade him from supporting a Bank of England interest-rate increase in the next few months.

It's the latest hint that policy tightening is on the way, just weeks after the governor and his colleagues on the Monetary Policy Committee said that signs of a pickup in wages and lessening slack in the economy could soon justify the first rate hike in a decade. Data on Friday showed confidence improving, better consumer savings and solid credit growth.

“If the economy continues on this track it's been on -- and all indications are that it is -- then in the relatively near term, you could expect interest rates to increase,” Carney told BBC Radio 4. He described as the move as “taking our foot off the accelerator.”

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U.K. consumer credit growth stayed close to an annual 10 percent pace in August, the BOE reported, while the statistics office said the savings ratio has been higher than previously estimated. While economic growth slowed in the first half, expanding 0.3 percent in each of the first two quarters, investment has picked up and trade contributed to the expansion in the April-to-June period.

The BOE seems “pretty determined,” said Alan Clarke an economist at Scotiabank. While weak services expansion and the poor outlook for growth are disappointing, “aiming low has given them a bit of leeway. I'm sticking to my call for a hike in November.”

The U.K. economy grew 0.3 percent in the second quarter, according to an update from the statistics office on Friday. While the reports showed the savings ratio isn't as bad as previously estimated, they also revealed that services, the largest part of the economy, unexpectedly shrank in July and the current-account deficit widened to 4.6 percent of GDP from 4.4 percent.

The pound fell 0.4 percent to $1.3376, paring its gain this month to 3.4 percent. The yield on 10-year benchmark securities fell one basis point to 1.36 percent.

Rate Reversal

The BOE's key interest rate is currently at a record-low 0.25 percent after the bank cut it following the Brexit vote in June 2016.

There are are nascent signs that confidence is starting to return. GfK's indicator of consumer sentiment picked up modestly this month, and Lloyds Bank's measure for business rose from the lowest level in a year. That bodes well for spending, which cooled after the pound's decline fueled faster inflation.

At the same time, house-price gains are slowing, Nationwide Building Society reported. The annual rate cooled to a 2 percent pace from more than 5 percent a year ago, while prices in London dropped year-on-year for the first time since the financial crisis.

Carney and Deputy Governor Ben Broadbent will have the chance to elaborate on their views about the outlook. Both are scheduled speak at a conference on Friday marking 20 years of the U.K. central bank's autonomy in setting interest rates. Chief Economist Andy Haldane said on Wednesday that a hike should be considered good news for the U.K., rather than a source of fear.

--With assistance from David Goodman and Jill Ward

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net, Harumi Ichikura in London at hichikura@bloomberg.net.

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Fergal O'Brien, Craig Stirling

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