On Thursday, Bank of England Governor Mark Carney said growth will slow in coming months and that further reduced interest rates and other measures will be necessary, though he said he have faith for the U.K.’s ability to successfully in the future outside the European Union.
“It now seems plausible that uncertainty could remain elevated for some time,” Mark Carney said. “The economic outlook has deteriorated and some monetary policy easing will likely be needed over the summer.”
Early before the Brexit vote, Mark Carney had warned of slower growth as consumers and businesses responded to heightened uncertainty by cutting spending. In a speech to businesspeople and bankers on this Thursday, Mark Carney said that was now the bank’s expectation.
Mark Carney said it was his personal view that the central bank would need to cut its key interest rate, currently 0.5%, “over the summer,” adding that an initial assessment of the economic damage caused by the vote to leave the EU would be made at the Monetary Policy Committee’s July meeting, and a “full assessment,” alongside new forecasts for growth and inflation, would take place in August. That suggests he favors an August move, while leaving the door open to an earlier decision.
The pound dropped 1.4 percent, weakening to $1.3247 at 5:43 p.m. London time. U.K. gilts advanced, with the 10-year yield touching a record-low 0.861 percent. The FTSE-100 Index closed at the highest since August.
Sterling has fallen about 11 percent since the EU vote. Asked about the initial drop after the referendum result, Carney said big moves were to be expected and there had been a need for the pound to “find a new level.”
“While the currency was moving, it wasn’t moving because of market technicals, it was moving because of opinions,” he said. “And when the market is functioning, you don’t want to get in the way of it.”
Carney said the U.K. needs a “comprehensive strategy for engaging with EU and the rest of the world,” highlighting trade, migration, capital flows and regulations as key areas. “Plan beats no plan,” he said, citing former U.S. Treasury Secretary Tim Geithner.