Carney’s Brexit Worries Mean BOE Chief in No Rush to Tighten – Bloomberg
In his first major comments in six weeks, the Bank of England governor addressed weaknesses in the economy, saying that domestic inflation pressures remain subdued and wage growth is anemic. He also highlighted the level of uncertainty surrounding the U.K.’s talks to exit the European Union, saying he wants to see how the economy responds to the “reality of Brexit negotiations.” The pound fell after the remarks.
Photographer: Simon Dawson/Bloomberg
Carney’s speech opened with a homily to the “hope and despair” that has faced a Britain hit by terrorist attacks and a devastating tower-block fire in recent weeks. He said the best response London and the country can give is to “renew our shared commitment — whatever our differences — to promote the common good.” He added that this includes a Brexit that “works for all.”
The comments come less than a week after the Monetary Policy Committee’s latest meeting, where three members unexpectedly voted to raise the benchmark rate from a record-low 0.25 percent, saying a surge in inflation outweighs the risks to growth. The governor, who voted with the majority to leave the rate unchanged, refuted that view on Tuesday.
“Now is not yet the time to begin that adjustment,” Carney said in a speech at London’s Mansion House. “In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations.”
Sterling dropped against the dollar and was at $1.2673 as of 8:39 a.m. London time, down 0.5 percent on the day.
Carney’s speech comes a day after the start of talks to leave the EU, which saw British negotiators give in to demands to discuss the terms of its divorce — including the exit fee — before any consideration can begin on the future trade deal Britain wants with Europe’s common market. The BOE has said it would favor a smooth transition to its new relationship, avoiding a so-called cliff edge.
“Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption,” Carney said. “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.”
Carney also renewed his warning about Britain’s current-account deficit, saying that it’s sustainability “remains an open question” even after the pound’s depreciation. The answer “depends crucially on the outcome of the Brexit negotiations,” he said.