Carney: Underlying prices too subdued for tightening

6/20/2017, 9:52 AM
Carney: Underlying prices too subdued for tightening

Spare capacity in the economy is expected to shrink, which will reduce the Bank of England's tolerance for inflation above target, Governor Mark Carney said on Tuesday in Mansion House. In a speech that was delayed because of the Grenfell Tower fire, the top policymaker expressed the view that, however, it is not the time to tighten policy, citing weak upward pressures on prices, namely wage growth.

Carney has been insisting the jump in inflation was driven by the pound's depreciation since the Brexit referendum one year ago. The statement from the latest meeting of the Monetary Policy Committee has revealed a split among rate-setters, as three out of eight favored a rise in interest rates. 

"Raising barriers to trade disproportionately hurts the least well off through higher prices and fewer opportunities," the governor stressed in relation to the ongoing negotiations about Britain's departure from the European Union. He reminded one million people in the country work in financial services, accounting for 7% of output. "During the negotiating period the economy will be importantly influenced by the expectations of households, firms and financial markets about the nature of both the transition and the longer-term economic relationships with the EU and other countries... 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," he warned.

TeleTrader Newsroom / IT

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