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
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.