Car­ney: lack of Brexit tran­si­tion risks in­fla­tion rise

Bank of Eng­land Gov­er­nor says an abrupt exit from the EU could hit the pound and in­vest­ment

The Daily Telegraph - Business - - Front Page - By Tim Wal­lace and Anna Isaac

BRI­TAIN could suf­fer even higher in­fla­tion if Brexit ne­go­tia­tors fail to agree a tran­si­tional deal with the Euro­pean Union, Mark Car­ney has warned.

An abrupt exit might re­sult in a fur­ther fall in the value of the pound and dent busi­ness in­vest­ment, squeez­ing the UK econ­omy and lead­ing to higher prices. The Gov­er­nor of the Bank of Eng­land said a tran­si­tional deal would help com­pa­nies and house­holds to ad­just, adding he would “cast my vote” for such an agree­ment.

“On the mo­ment of Brexit, it will very much de­pend on what the fi­nal ar­range­ment is with the EU 27, and what the tran­si­tion path is from here to there,” he told the Euro­pean Cen­tral Bank’s com­mu­ni­ca­tions con­fer­ence. There has al­ready been some fall­out from Brexit – both in terms of in­vest­ment and the value of the pound – be­cause busi­nesses and mar­kets re­main un­cer­tain about the fi­nal shape of any deal, Mr Car­ney said.

He pledged that the Bank of Eng­land will do ev­ery­thing it can to keep the econ­omy grow­ing, and the fi­nan­cial sys­tem sta­ble, through Brexit: “What are we try­ing to say to the peo­ple of UK? Very sim­ple: we will do what­ever we can to sup­port the econ­omy sub­ject to re­turn­ing in­fla­tion to that 2pc tar­get – so don’t worry about in­fla­tion.”

His com­ments came as data re­leased by the Of­fice for Na­tional Statis­tics showed that in­fla­tion was lower in Oc­to­ber than ex­pected. Rather than the rise that economists had pre­dicted of 0.1 or 0.2 per­cent­age points, in­fla­tion re­mained at 3pc last month.

How­ever, the slower than ex­pected rise did not mark an end to the cost-ofliv­ing squeeze. House­holds will still be hit by ris­ing prices, as food in­fla­tion con­tin­ued to climb, hit­ting 4.1pc – the high­est level since Septem­ber 2014. This was off­set by a slight fall in other com­mon house­hold ex­penses such as fuel.

How­ever, it raised ques­tions among economists about whether the Bank of Eng­land had jumped the gun with its re­cent in­ter­est rate rise.

Fuel was added to that de­bate by Sir Jon Cun­liffe, the deputy gov­er­nor of the Bank. He told the Ox­ford Eco­nomics So­ci­ety he voted against the rate rise ear­lier this month be­cause he wants to see pay growth start to pick up – a sign that in­fla­tion­ary pres­sures are ris­ing – be­fore tak­ing any steps to rein in in­fla­tion.

Un­em­ploy­ment is at 4.2pc, its low­est level in 42 years, which would nor­mally push wages up rapidly.

But, in­stead, pay is ris­ing at the same pace as it was in 2011 when un­em­ploy­ment was twice as high, in­di­cat­ing that the tra­di­tional re­la­tion­ship be­tween jobs and pay may have bro­ken down, Sir Jon said.

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