Bank of England's Carney sees Brexit pushing up inflation, rate rise likely

by Harriet Bell September 21, 2017, 0:26
Bank of England's Carney sees Brexit pushing up inflation, rate rise likely

The Pound outlook jumped as the bank, as well as BoE Governor Mark Carney, indicated that there may need to be a United Kingdom interest rate hike in the coming months if the economy continues to perform near its current pace. Interest rates are likely to be higher as a result, he said. Indeed, given that interest rates have not risen since 2007, the MPC may well sit tight for an extended period after an initial hike to see how consumers and businesses respond.

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.

"We expect growth of retail sales volumes to have held up in August, despite the ongoing squeeze on households' real incomes", says Fin McLaughlin, a United Kingdom economist at Capital Economics.

Sterling jumped by nearly a cent against the dollar on Wednesday after data showed British retail sales surged unexpectedly in August, increasing pressure on the Bank of England to lift interest rates from their record lows.

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Given the UK's rising inflationary pressure and the continued erosion of slack in the economy, BOE is likely to withdraw monetary stimulus over the coming months in order to return inflation sustainably to target, said Carney.

Speaking at the International Monetary Fund's headquarters in Washington yesterday, he reaffirmed that any rate rise would be at a gradual pace.

At a speech to the IMF, Mark Carney said that Brexit is an example of "de-globalisation" and will lead to higher United Kingdom inflation and lower productivity. A reduction in trade integration may have adverse implications for the supply of goods, services and labour at cheap rates.

"Prolonged low investment will restrain growth in the capital stock and increases in productivity". He also noted that net migration has fallen by about 25% since the Brexit referendum. It is likely to stay above 2% for the next three years, Mr.

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At the time of writing this article, the GBP AUD exchange rate trended in the region of 1.6890.

Some analysts predicted that there could be a United Kingdom interest rate hike as soon as November, with another following in the first half of 2018.

Some of Carney's comments were interpreted as more dovish in the wake of last week's MPC statement, reinforcing the view that the rate-hike cycle in the United Kingdom will be very shallow-or "limited and gradual", to use Carney's phrase.

Vlieghe has previously voted to maintain Bank Rate at 0.25%, but says that he has been "struck particularly" by certain developments in recent months.

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"While the BoE looks genuinely minded to raise interest rates sooner rather than later, a hike before the end of 2017 still looks far from inevitable".


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