Interest rate rise still on agenda for early 2016

The governor of the Bank of England, Mark Carney has said the decision to raise interest rates will remain at the top of the agenda early next year, despite the economic slowdown in China.

Speaking at an annual convention of central bankers and economists in Jackson Hole, Wyoming in the US, Mr Carney acknowledged that the financial problems in China would likely be a drag on global economic growth – but that it probably wouldn't lead to a delay in the planned rate increase.

"The prospect of sustained momentum in the UK economy and the gradual firming of the underlying inflationary pressures will likely put the decision as to when to start the process of gradual monetary policy nomalisation into sharper relief at the turn of this year," he said.

According to the BBC, this is another way of saying that he stands by the economic timetable for possibly raising rates, which he originally set out on July 16th during a visit to Lincoln Cathedral.

Domestic demand could offset slowdown in China

Mr Carney said he wanted to reduce speculation that developments in China have changed "the process of rate increases from limited and gradual to infinitesimal and inert", However, he noted that an interest rate rise was by no means inevitable in the early months of 2016.

He explained that the Bank of England would need to determine whether domestic demand was strong enough to offset any potential further slowing in China and the rest of "non-Japan Asia".

Following the financial problems in China last week, there has been speculation that both the US Federal Reserve and the Bank of England would delay the first interest rate rises since 2008. Mr Carney has made clear that the decision to increase interest rates would depend on economic data between now and the beginning of next year.

Currently, the plan is for rates to go up from 0.25 per cent to 0.5 per cent. While Mr Carney seems confident that developments in China would not lead to further delays in interest rates, the BBC notes that his is just one vote in the final decision – and his colleagues may not agree.

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