Bank of England Governor Sees Weak Wage Growth Delaying Rate Rises

Cornelia Mascio
Giugno 20, 2017

Bank of England Gov. Mark Carney Tuesday said that while rate setters' tolerance for above-target inflation is coming to an end, it is too early to raise the key interest rate for the first time in a decade.

The pound lost nearly a cent against the dollar to $1.2694, as the text of a speech due to be delivered by Carney last week showed he would like to see consumption and wages strengthen before the Bank of England hikes rates.

"Market sentiment towards sterling had shifted towards a possible rate hike followiing a shock shift to 5-3 last week from the MPC (Bank of England monetary policy committee)", said Mizuho's head of hedge fund FX sales, Neil Jones.

"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".

The pound sank on the news, falling 0.4% against the dollar and euro to 1.26 and 1.13 respectively.

"Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption".

The governor also mounted a robust defence of London's euro clearing market, which has come under threat after the result of last year's Brexit vote.

Carney said fragmentation of such global markets by jurisdiction or currency would reduce the benefits of central clearing, which ensures the safe completion of a trade.

"Fragmentation is in no one's economic interest".

However, the governor welcomed parts of the proposals that would see co-operation arrangements between the European Union authorities and their overseas counterparts, including potential provisions for deference to the rules to which a clearing house is subject in its home jurisdiction.

Mr Carney, speaking alongside Chancellor Philip Hammond, again warned against protectionism, saying it leads "neither to equity nor prosperity".

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