News ID: 195189
Published: 1238 GMT June 21, 2017

BoE governor defends decision not to raise interest rate

BoE governor defends decision not to raise interest rate

Bank of England (BOE) governor Mark Carney defended an earlier decision by the bank not to raise interest rate from the record low of 0.25 percent.

"Given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anemic wage growth, now is not yet the time to begin that adjustment," Carney told business leaders in his annual Mansion House speech, Xinhua reported.

The BOE's rate-setting Monetary Policy Committee (MPC) met last week and decided not to raise the bank rate from the record low set in August last year as a counter-stimulus to the expected deflationary pressures that Brexit would bring to the British economy.

"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 prospect of tighter financial conditions and the reality of Brexit negotiations," said the central bank governor.

British Consumer Price Index (CPI) touched 2.7 percent in May, continuing a rising trajectory that started after the Brexit referendum vote on June 23 last year.

The CPI inflation in May 2016 was 0.5 percent, but the rapid fall in sterling from $1.48 on the day of the vote to $1.19 has made imports and raw materials more expensive, fuelling the rapid rise in inflation.

Sterling traded down on Tuesday at $1.26, having lost as much as one percent against the dollar immediately as markets assessed Carney's speech.

Carney said that Brexit has affected central bank monetary policy, and would weigh on future growth and prosperity of the British economy.

"Since the prospect of Brexit emerged, financial markets, notably sterling, have marked down the UK's economic prospects," he said.

"Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU," he added.

Carney also defended the role of London as one of the major global financial hubs.

Carney's speech at the Mansion was an annual keynote speech on the direction of the British economy, and it had been delayed from last week because of the Grenfell Tower fire tragedy.

   
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