LONDON (Reuters) - Bank of England Governor Mark Carney said it was not easy to predict the effect on inflation if sterling fell sharply after Britain voted to leave the European Union, in a reply to a MP’s question published on Wednesday.
Labour Party MP Rachel Reeves had asked Carney last month what the impact would be on inflation if sterling fell by a fifth in the wake of a British vote to leave the European Union in a referendum on June 23
Carney, in a written response, said the central bank’s mechanical rules of thumb assumed that a persistent 10 percent fall in sterling would add 0.75 percentage points to consumer price inflation after two to three years, and that a 20 percent fall would have double the effect.
But he added that it would be wrong to assume this would apply in the case of Brexit.
“It comes with strong caveats and assumes, unrealistically in this case, that the exchange rate moves for purely ‘exogenous’ or un-modelled reasons. It also assumes that there are no other shocks and that expectations of future inflation remain anchored to the MPC’s inflation target,” Carney said.
Carney’s reply is dated March 29, and was released by Andrew Tyrie, chair of the parliament committee on which Reeves serves.
Reporting by David Milliken, editing by Andy Bruce