GOVERNOR WARNS NEXT RATE CHANGE COULD BE DOWN – OR MAYBE UP

The repercussions surrounding the United Kingdom’s decision to leave the EU continue to dominate economic opinion and market reaction. In a speech to the London School of Economics today, the Governor of the Bank of England Mark Carney appears to have revised the latest Forward Guidance for interest rates to “maybe up or maybe down”. The reasons behind this shift stem from the falling pound due to government hints of a hard Brexit and the subsequent fear of rising inflation. Previously, the MPC was insistent that they would do nothing in terms of monetary policy which would harm the prospect of sustainable economic growth and indeed, the recent reduction in Bank Rate to a record low of 0.25% would seem to back up this argument, despite many in the City expressing some disquiet about lowering rates at this juncture. Until today, the Bank has seemed to wish to “look through” the potential rise in inflation on the basis it expects it to come back down within the 2% range which is part of its remit. Today’s comments from the Governor would seem to hint at a shift in his afore-stated position.

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