Bank of England chief downplays chance of interest rate hike

Reuters

The pound fell after the Bank of England governor said he did not think that now was the time for interest rates to rise.

In addition, he appears to be in "wait and see" mode indicating that he wants to see the extent to which other elements of demand offset weaker consumer spending over the coming months, and whether wages start to firm up.

Speaking after three Bank policymakers called for a rate rise amid warnings that Brexit-fuelled inflation is set to surge further over the summer, Mr Carney said "now is not yet the time to begin that adjustment". One pound was trading at $1.2675 following Carney's announcement, down from $1.275.

"Carney doesn't want to be seen as reacting too quickly (to Brexit) - he's also fully aware the United Kingdom hasn't left the European Union yet and he wants to keep his monetary policy loose on the off chance that the United Kingdom doesn't get an unbelievable deal", said David Madden, markets analyst at CMC Markets.

He added hopes that the uncertainty would soon lift to reveal "the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption".

" 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.

"The UK houses some of the world's largest CCPs (central counterparty clearing houses)".

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'Fragmentation of such global markets by jurisdiction or currency would reduce the benefits of central clearing, ' he said.

He added: "Quite why anyone was surprised is unclear but the market reacted".

Carney made the comments in his annual Mansion House speech, which was delayed following a catastrophic fire in west London that killed at least 79.

Ian McCafferty, Michael Saunders and Kristin Forbes all voted for a rate rise, but the other five members chose to keep rates at their current level.

External members Ian McCafferty, Michael Saunders and the outgoing Kristin Forbes supported a rise to 0.5% after the rate of inflation hit 2.9% in May - its highest level in nearly four years.

On Brexit, Hammond said the Conservative Party was committed to keeping taxes as low as possible to encourage growth.

The Chancellor also signalled the United Kingdom would seek to maintain the "frictionless" border arrangements of the European Union's customs union for an "implementation period" after leaving the bloc.

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