Bank of England chief downplays chance of interest rate hike

Bank of England chief downplays chance of interest rate hike

Bank of England chief downplays chance of interest rate hike

Sterling fell by nearly a full cent against the dollar on Tuesday after Bank of England Governor Mark Carney said now was not the time to raise interest rates, dashing some investors' expectations the central bank had shifted in that direction.

Sterling fell below $1.27, a fall of 0.4 per cent, following Mr Carney's annual Mansion House speech, in which he suggested rates could remain at their 0.25 per cent low for some time. After data last week showed United Kingdom inflation had soared to 2.9% in May, investors started to speculate about when the central bank would step in to control rising consumer prices.

The Bank's governor told a City audience "now is not yet the time" to raise borrowing costs to combat Brexit-linked inflationary pressures.

His comments come less than a week after the Monetary Policy Committee experienced a split on the issue at its monthly meeting, divided 5-3 over whether to raise rates in the closest vote since 2007.

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Mr Carney said on Tuesday: "Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank rate increase".

During his Mansion House speech this morning, Carney cited mixed signals on consumer spending and business investment as well as "anaemic wage growth" as his reasons for holding off on a rate rise.

Carney said he would like to see if falling consumer confidence is offset by other components of demand, whether wages begin to "firm", how the economy reacts to "tighter financial conditions", as well as the reality of Brexit negotiations, before considering any rate hike.

On Brexit, the governor said Britain's divorce from the block is set to result in "weaker real income growth", job losses and price rises, but added that monetary policy has limited power to prevent economic weakness.

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Hammond said a final Brexit deal needed to include a comprehensive agreement on trade and services.

The Chancellor also signalled the United Kingdom would seek to maintain the "frictionless" border arrangements of the European Union's customs union for an "implementation period" after leaving the bloc.

Britain began Brexit talks with the European Union on Monday in Brussels.

The EU's chief negotiator, Michel Barnier, a former French foreign minister and EU commissioner, said he wanted to agree key priorities and a timetable for discussions.

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