Bank of England Governor Mark Carney said Tuesday that "now is not yet the time" to raise interest rates in a delayed speech that could trim bets on tighter financing conditions from the Bank as inflation surges in the months ahead.
In the text of a speech that was due to be delivered last week at the annual Mansion House dinner, but was delayed as a mark of respect to the victims of the Grenfell Tower fire in West London, Carney also said that Britain's EU exit negotiations would signal "the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption."
The phrase is a clear challenge to a now infamous comment from Foreign Secretary Boris Johnson, who said last year in reference to the government's ambition for a post-Brexit relationship: "My policy on cake is pro having it and pro eating it."
"From my perspective, 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," Carney 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 prospect of tighter financial conditions and the reality of Brexit negotiations."
The pound fell sharply in the wake of the release of the text, giving up around 0.5% against the U.S. dollar to trade at 1.2670, a one-week low, by 08:45 London time.
Last week, the BoE's Monetary Policy Committee kept its key lending rate at a 300-year low of 0.25%, even as three of its eight members voted for a hike in the face of surging inflation.
Consumer prices rose at a 2.9% clip in May, the Office for National Statistics said Tuesday, up from 2.7% in April and much faster than the 2.7% rate anticipated by economists.
"Inflation could rise above 3% by the autumn, and is likely to remain above the target for an extended period as sterling's depreciation continues to feed through into the prices of consumer goods and services. The 21/2% fall in the exchange rate since the May Inflation Report, if sustained, will add to that imported inflationary impetus," the BoE said last week.
However, Carney insisted that economic weakness, particularly in terms of income gains, will likely keep the Bank from lifting rates in the near term.
"Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU," he said."But it can influence how this hit to incomes is distributed between job losses and price rises. And it can support households and businesses as they adjust to such profound change.
"Indeed, in such exceptional circumstances, the MPC is required to balance any trade-off between the speed with which it returns inflation sustainably to the target and the support that monetary policy provides to jobs and activity."
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