Now is not the time to raise interest rates, Bank of England Governor Mark Carney said on Tuesday, warning of weak wage growth and a likely hit to incomes as Britain prepares to leave the European Union.
Carney, speaking to London’s banking community alongside finance minister Philip Hammond a day after Brexit talks started, said that depending on how the talks progress, businesses might soon need to activate contingency plans.
“Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption,” he said.
“Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU.”
Last week, three BoE policymakers of the eight on the Monetary Policy Committee unexpectedly voted to raise interest rates. Carney voted to keep them at a record low 0.25 percent and gave no sign he was in a rush to change his view.
“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,” he said.
“In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to … the reality of Brexit negotiations.”
Carney also underlined the importance of trade liberalisation – especially in financial services – and said it was unclear if Britain’s large current account deficit was yet on a sustainable footing. (Reuters)