Mark Carney warns about Brexit risks to UK, EU economies

Xavier Trudeau
Juin 20, 2017

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.

Finance minister Philip Hammond told the same Mansion House audience that it was important to avoid a "cliff edge" when Britain quits the European Union in 2019 and to have a transitional deal on trade before a full agreement is reached.

The country will soon "begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption", Mr Carney added.

Sterling's weakness been a factor in consumer price inflation reaching its highest in almost four years, contributing to a slowdown in consumer spending and lacklustre first-quarter growth.

Carney admitted that since the Brexit vote the UK's economic prospects have dwindled but said that monetary policy "cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU".

On Thursday three of eight Bank policymakers called for a rate rise amid warnings that Brexit-fuelled inflation is set to surge further over the summer.

Carney said weak wage growth raised questions about the strength of domestic inflationary pressures, and he was unsure how the economy would respond to talks.

He said anaemic wage growth and falling consumer confidence in the wake of Brexit and the indecisive general election mean the economy is not ready for the adjustment.

The Canadian said he would like to see if falling household spending is offset by better trade or a rebound in investment, whether wages increase, and "how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations" before considering any rate hike.

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.

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