Drive up inflation as he flags rates rise
International Monetary Fund managing director, at the IMF headquarters in Washington yesterday ued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target,” the governor said.
However, Mr Carney said that “any prospective increases” in the Bank’s benchmark interest rate would be made at “a gradual pace and to a limited extent” and would need to continue providing “substantial support to the economy”.
The governor also warned that Brexit could temporarily push up inflation, currently at 2.9 per cent, far beyond the Bank’s 2 per cent target.
He flagged the effects of any potential increases in tariffs on UK imports, or increases in the cost of imports due to “broader access restrictions”.
“Abrupt decreases in migration” could also spark shortages in some British industries that have become reliant on migrant labour and ultimately “contribute more materially to inflationary pressures”, he added.
That is likely to compound the effects of any further devaluation of sterling, which has already fallen against major currencies including the US dollar and euro in the wake of the Brexit vote.