BoE Governor Says Brexit is Inflationary

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One consistent factor to the Bank of England's (BoE) recent rhetoric, is that the potential of higher United Kingdom interest rates depends on the strength of Britain's economic activity over the coming months.

"It's traders digesting Carneys comments yesterday and assessing that they may have jumped the gun a little with regards to the timing of the first rate hike", said Jake Trask, corporate dealer at OFX.

Central banks in major economies have begun or are considering monetary tightening.

The BoE governor also said there are global factors that could justify United Kingdom policy tightening soon.

So what is the interest rate?

Last week markets were taken aback by a hawkish move by the committee, which saw sterling rise as investors adjusted for a closer hike in interest rates than had previously been anticipated.

Speaking in support of that stance, he described Brexit as inflationary, while saying that the rate setting panel has a responsibility to curb such trends.

United Kingdom inflation, which is far above the 2-percent BOE target, is inspiring the anticipations of the regulator's tougher stance on monetary policy. The pound was down 0.7% against the common currency at €1.129.

" There remain considerable risks to the United Kingdom outlook", including the response of households, businesses and financial markets to the UK's withdrawal from the EU.

Mark Carney's speech underscores the complexity of the task facing the BoE as Britain attempts to extricate itself from the EU.

Sterling jumped by nearly a cent against the dollar on Wednesday after data showed British retail sales surged unexpectedly in August, increasing pressure on the Bank of England to lift interest rates from their record lows. Economic growth slowed in the first half of the year and inflation has accelerated to nearly 3%.

Inflation hit 2.9% in August as the effects of the slump in sterling following the Brexit vote continued.

Brexit is an example of "stepping back in order to jump better", Carney said - employing the French phrase "reculer pour mieux sauter" - but he added that "any reduction in openness with the European Union is unlikely to be immediately compensated by new ties of similar magnitude with other trade partners".

"Mark Carney is right to be gloomy about our post-Brexit prospects if we continue to follow the prescription of the Treasury, the CBI and the Bank of England", John Longworth of the British Chambers of Commerce (BCC) said.

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