Bank of England Chief Downplays Chance of Interest Rate Hike

Arguing his case Carney pointed to the anaemic wage growth over the last few months and its drag on consumer spending as a major barrier in raising interest rates, whilst also warning that the uncertainty of Brexit and it possible impact on the United Kingdom economy made it prudent to ensure that the bank's monetary policy could adapt as needed.

After a strong performance in the second half of 2016, the CBI said political uncertainty, including the ongoing Brexit negotiations, would start to weigh on the economy.

Referring to the slump in sterling since last June's vote, Mr Carney told his audience that "markets have already anticipated some of the adjustment" and suggested that without a post-2019 transition process for the United Kingdom, which would retain single market and customs union membership for the United Kingdom for a period, the situation could deteriorate further and cause some firms to move operations out of Britain.

Mr Carney said on Tuesday: "Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank rate increase".

In his keynote speech to City leaders at Mansion House, he again signalled his "soft Brexit" credentials by stressing Britain would leave the European Union "in a way that prioritises British jobs and underpins Britain's prosperity". Depending on whether and when any transition arrangement can be agreed, firms on either side of the channel may soon need to activate contingency plans.

"Monetary policy can not prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the European Union".

Many investors expect the so-called A shares that make up the majority of China's stock market are likely to be included after being rejected on three previous occasions.

Britain's inflation rate rose to 2.9 percent in May - the highest in almost four years. "[But] as spare capacity erodes ... tolerance for above-target inflation falls", he said.

For three policymakers that justified undoing last year's rate cut, but Carney made clear he was in no rush to join them. "That "on hold" view is strengthened knowing that the governor is minded to act cautiously", said Investec economist Victoria Clarke.

The MPC had cut Bank rate to a record low 0.25% in August past year to combat the threat of a slowdown after the Brexit result. "But ensuring that it happens via a smooth pathway. one that protects jobs, prosperity, and living standards in Britain will require every ounce of skill and diplomacy", he said on Tuesday.

Wage growth is falling, and the impact of Brexit on the economy is unclear, Mr Carney said in a speech at Mansion House in London.

  • Zachary Reyes