'Disorderly Brexit' could spark interest rate cut: Carney

Bank of England governor Mark Carney has warned that a disorderly Brexit could force the Bank of England to cut interest rates.

Related topics:  Finance News
Rozi Jones
25th May 2018
Mark Carney BoE
"A more disorderly transition, or a materially different end state from our assumption, would have implications for monetary policy"

During a speech in London, Carney said that with the Brexit date looming, a sharper Brexit would have implications for monetary policy and "could put monetary policy on a different path".

He explained: "For example, if the transition were disorderly, or the end state agreement materially worse than the average potential outcome, then the MPC could once again be confronted by a trade-off between the speed with which it returns inflation to target and the support policy provides to jobs and activity.

“The policy response would reflect the balance of the effects of a sharper Brexit on demand, supply and the exchange rate... Although the exact policy response cannot be predicted in advance, observers know from our track record that, in exceptional circumstances, we are both willing to tolerate some deviation of inflation from target for a limited period of time and that there are limits to that tolerance.”

Carney noted that although households looked through Brexit-related uncertainties initially, as the consequences of sterling’s fall showed up in the shops and squeezed their real incomes, they have cut back spending growth to rates about one half of those pre-referendum.

He added that businesses have also invested "much less aggressively than usual... reflecting the drag from Brexit-related uncertainties".

Carney concluded: "From a monetary policy perspective, the Bank is ready for Brexit. The MPC is well-prepared for whichever path the economy takes. We have the tools we need. We will be prudent not passive."

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