“We’re going through this period of uncertainty in the run up to some resolution around Brexit,” the BOE governor told reporters after policy makers unanimously kept rates on hold. If “that resolution is some form of arrangement, with some form of relatively smooth transition to it, it will require interest rate increases over that period and it will require more and more frequent interest rate increases than the market currently expects.”
Before Carney spoke, investors were predicting only one more quarter-point hike between now and 2021. That path is "unequal" to achieving the BOE’s inflation remit, the Governor said.
The comments came as the bank published new economic forecasts for the first time since the deadline for the U.K. to leave was extended to October. The economy has been hobbled by the uncertainty, leading to a year of falling investment, and the minutes said the timing and nature of Brexit remained the biggest factor for the outlook.
The BOE’s forecasts were relatively upbeat, projecting that unemployment will fall further and the economy will generate more excess demand than previously predicted, while at the same time cutting the near-term inflation outlook.
“There remained mixed signals from indicators of domestically generated inflation and the cost of waiting for further information was relatively low,” the minutes of the meeting said. At the same time, “an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate.” [...]
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