Carney backs Brexit in stages
Bank of England governor Mark Carney has said a transition agreement for EU withdrawal is in everyone’s interest and said it may be appropriate to raise interest rates as Brexit-fuelled inflation is set to rise further.
Mr Carney told MPs that policymakers on the bank’s Monetary Policy Committee believed a rise in interest rates may be needed over the coming months as it looks to tackle surging inflation caused by the weak pound.
However, his comments sent sterling lower, with investors taking it as a sign that the bank’s first rate hike in decades could come later than predicted. Economists have been pencilling a rate hike in November, when the bank’s next decision and latest set of forecasts are due.
Mr Carney said: “Having made progress over the last 14 months, the economy having created almost 400,000 jobs, having used up most spare capacity, having seen some early evidence of building domestic pressures, the judgement of the majority of the committee is that some raise in interest rate in coming months may be appropriate in order to have that sustainability.”
The pound was down nearly 0.5% against the dollar in afternoon trading at 1.318 and down 0.1% versus the euro at 1.121. The currency was also hit by dovish signals from Mr Carney’s colleagues who appeared in front of the Treasury Select Committee yesterday.
Dave Ramsden, deputy governor for markets and banking at the Bank of England, said he voted to maintain interest rates at 0.25% in September and “wasn’t in the majority” among Monetary Policy Committee members who saw the case for potentially removing some monetary stimulus in the near future.
Recently appointed policymaker Silvana Tenreyro, who also voted to keep rates on hold, went on to agree with previous warnings made by fellow committee members over the impact of a “premature” rate rise on the economy, while Brexit uncertainty still weighed on the outlook.
She said: “Premature increases will require a lot more cuts in the future to recover that ground lost. If that’s a mistake, that can be costly,” she said.
During his own hearing, Mr Carney also stressed the importance of avoiding a hard Brexit without arranging a transition agreement.
