Time not right for interest rate rise, says Bank governor Mark Carney
He was speaking after three policymakers called for a rise amid warnings that Brexit-fuelled inflation is set to surge over summer.
Now is not the time for an interest rate hike while wages continue to stagnate and the impact of Brexit on the economy is unclear, Bank of England Governor Mark Carney has said.
Speaking after three Bank policymakers called for a rate rise amid warnings that Brexit-fuelled inflation is set to surge further over the summer, Mr Carney said “now is not yet the time to begin that adjustment”.
Delivering his delayed Mansion House speech, Mr Carney said: “Different members of the Monetary Policy Committee will understandably have different views about the outlook and therefore on the potential timing of any Bank rate increase.
“From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment.”
The Canadian said he would like to see if falling consumer confidence is offset by other components of demand, whether wages begin to “firm”, how the economy reacts to “tighter financial conditions”, as well as the reality of Brexit negotiations, before considering any rate hike.
Last week the MPC kept interest rates on hold at 0.25%, but Ian McCafferty, Michael Saunders and Kristin Forbes all voted for a rise to 0.5%, marking the first time three members have dissented for more than six years.
It came after inflation hit 2.9% in May – its highest level in nearly four years and far higher than expected. The pound sank on the news, falling 0.4% against the dollar and euro to 1.26 and 1.13 respectively.
On Brexit, the governor said the country will soon “begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption”.
Mr Carney also waded into the row over euro-clearing after the EU released proposals which could force operators to leave London as a result of Brexit, putting the capital’s multi-billion industry at risk.
“The UK houses some of the world’s largest CCPs (central counterparty clearing houses). Fragmentation of such global markets by jurisdiction or currency would reduce the benefits of central clearing,” he said.
“Any development which prevented EU27 firms from continuing to clear trades in the UK would split liquidity between a less liquid onshore market for EU firms and a more liquid offshore market for everyone else.”
He also added his voice to concerns that wrenching clearing from London would result in higher costs, arguing that “fragmentation is in no one’s economic interest”.
Mr Carney, who was speaking alongside Chancellor Philip Hammond, again warned against protectionism, saying it leads “neither to equity nor prosperity”.
Mr Hammond said immigration to Britain will be managed but not “shut down” after a “jobs first” Brexit.
The Chancellor also signalled the UK would seek to maintain the “frictionless” border arrangements of the European Union’s customs union for an “implementation period” after leaving the bloc.
In his keynote speech to City leaders at Mansion House, he again signalled his “soft Brexit” credentials by stressing Britain would leave the EU “in a way that prioritises British jobs and underpins Britain’s prosperity”.
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