Pound extends losses as Carney less hawkish than some feared
- Author: Eleanor Harrison Sep 21, 2017,
Sep 21, 2017, 0:22
The Bank of England's Governor Mark Carney said on Monday that Brexit is likely to hamper growth in Britain as it may end up pushing up inflation, and the country will have to take some time to adjust to life outside of Europe.
This is despite the suggestion of higher interest rate hikes that gave the sterling a boost last week.
According to CEBR's updated view of the United Kingdom economy in 2018, gains in manufacturing and a solid labor market will encourage investment and consumer spending as the monetary authorities prepare to step in to fix the faltering economy. The report explains that interest rates are rising for the first time in roughly a decade, and will allow the United Kingdom to curb inflation and encourage consumption and fixed-investment.
Figures released last week by the Office for National Statistics (ONS) showed Britain's unemployment rate hit a new low in the quarter to July 2017, while wages increased less than expected as they continue to lag behind inflation.
The BoE expects price growth to remain above its 2% goal in the coming years and said on Thursday it may soon need to lift its benchmark rate from a record-low 0.25%.
Mr Carney's comments come in light of the market now pricing in a near 100 per cent chance of United Kingdom interest rates moving upwards within 12 months.
That prompted a half-cent jump in the pound, to $1.3535 from around $1.3485 before the article was published.
He added: "Any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent, and to be consistent with monetary policy continuing to provide substantial support to the economy". Economic growth slowed in the first half of the year and inflation has accelerated to nearly 3%.
" There remain considerable risks to the United Kingdom outlook", including the response of households, businesses and financial markets to the UK's withdrawal from the EU.
Although households initially ignored Brexit-related uncertainties in the wake of the vote to leave the European Union, the consequences of the slide in sterling was now resulting in higher prices and a squeeze on pockets, Mr.
"The balance of these effects has lead overall United Kingdom growth to slow in the first half of 2017, even as growth in the rest of the G-7 was picking up, and United Kingdom growth looks set to remain weaker than the G-7 average until mid-2018", Carney said.
"These latest comments also follow remarks MPC member Gertjan Vlieghe made last Friday".