LONDON (Reuters) - Bank of England Governor Mark Carney gave a news conference on Thursday after the central bank said it may need to raise interest rates before the late 2019 date that markets had been expecting, assuming Britain can leave the European Union smoothly in two years’ time.
Below is a selection of his comments.
“This is going to be a more challenging time for British households over the course of this year, real income growth ... will be negative, wages won’t keep up with prices.
“It is important to put this into context - the economy is still growing solidly, the economy is still creating jobs, wages are still growing and we actually expect that the pace of wage growth is going to accelerate as this year progresses and certainly into 2018, 2019.”
“The Article 50 process, the negotiation process, that process and that end state of course has an influence on the economy and inflation. And we have to take that into account, and set monetary policy appropriately... But it does not tie the hands of the MPC. The MPC will take the necessary monetary decisions at the appropriate time.”
“The forecast does rely heavily on a recovery of wages, a pick-up in wage growth.
“It’s not a forecast that relies on - it’s not a debt fuelled consumption boom, is my point. It relies on wages.
“Is the squeeze in real incomes all because of Brexit? Is that a fair characterisation? And the short answer is no because part of the story here is that wage growth has been weak.
“Now wage growth has been weak for several years despite relatively strong, in some respects exceptionally strong, in terms of actual quantities of labour markets, in other words how many jobs have been created and hours that people are working.”
“In order to precisely answer that question, we would have had to do an alternative forecast, as you can appreciate, with some variant of a disorderly negotiating process. And we have not done that.
“As has been the case since our August forecast, we have assumed that the process of leaving the European Union would be a smooth one. That means there will be an agreement about future trading arrangements and there will be a transition, or an implementation period, from the negotiation to that new agreement.”
“The stimulus isn’t excessive, it’s appropriate, first point, and that’s the judgement of the committee.”
“Secondly, the inflation is above target because the exchange rate went down 16 percent, why did the exchange rate go down 16 percent? Largely because of the decision to leave the European Union.
“That’s a market judgement - I’m not endorsing the judgement, but that’s the market judgement... The question is, do we lean against that? And lean against something which has a real underlying fundamental aspect to it.
“Changing monetary policy is not going to change the future trading relationship between the UK and the European Union or the UK and other countries.”
“The squeeze that’s coming from rising import prices doesn’t last forever. As the governor said, we’re seeing it pretty acutely right at the moment, it does sort of dwindle over the forecast period, and that contributes to a rise in income growth in real terms.
“We still think that the tightness of the labour market means something for future wage growth.
“We still think that will help some recovery in the growth rate of nominal pay over the forecast period.”
Asked about sterling’s recent rebound: “It (inflation) has gone up 3 percent since February so it will have had at the margin, some depressive effect on inflation towards the end of the forecast.”
Reporting by Costas Pitas, Emily Roe and Alistair Smout