The UK is poised for the fastest growth in the G7 this year and BoE policy makers are weighing when to begin removing emergency stimulus measures. While some members of the Monetary Policy Committee (MPC) have started to push for a rate increase, the governor has voted with the majority, citing weak wages and anaemic growth in Europe as reasons to keep borrowing at 0.5%.
“With many of the conditions for the economy to normalise now met, the point at which interest rates also begin to normalise is getting closer,” Mr Carney said in a speech yesterday in Newport, Wales. “While there is always uncertainty about the future, you can expect interest rates to begin to increase.”
Speaking to a conference of actuaries, the governor also said the BoE would step up oversight of people in the insurance industry and will begin consulting on that this year.
The MPC has “no pre-set course” on the timing of the first rate increase, and it will be data-dependent, Mr Carney said. The nine-member panel has split for two months, with two officials voting for a quarter-point rate increase to reflect risks to inflation from a potential pick-up in wage growth.
The economic outlook is “much improved,” though the time needed for headwinds to die down means that rate increases will need to be “gradual and limited” to help borrowers cope with higher costs, Mr Carney said. The Financial Stability Board (FSB), which Mr Carney chairs, has extended measures aimed at too-big-to-fail banks to cover insurance firms. The FSB published a list targeting nine insurers for additional capital rules, including MetLife and Prudential Financial in the US and London-based Aviva.
The BoE gained new supervisory powers over insurers last year, as part of the British government’s broader push to consolidate financial oversight at the central bank. Its actions on banks have already encompassed an approved person’s regime to cover executives at the firms it regulates. Mr Carney’s speech, delivered to the Institute and Faculty of Actuaries General Insurance conference, discussed the BoE’s oversight of the insurance industry. He said the BoE was mindful not to underestimate “the scale of the challenge” insurers face in implementing the European Union’s Solvency II requirements.
The BoE will consult later this year on a regime to develop accountability for senior executives and actuaries, and is working with regulators elsewhere to develop the rules, he said.