LONDON: Britain’s currency plunged around 0.3 percent in value on Tuesday morning following a Bank of England announcement the U.K. was not ready for higher interest rates.
Central bank governor Mark Carney made the announcement alongside finance minister Philip Hammond in London during a speech which had been delayed because of the Grenfell Tower fire tragedy.The Bank of England had been expected to raise interest rates after official Brexit negotiations began on Monday between the U.K. and the EU. Pound sterling reacted to the news by plunging to its lowest level in a week. One pound was trading at $1.2675 following Carney’s announcement, down from $1.275. Carney said it would be wrong to raise borrowing costs now, before knowing how Brexit negotiations could play out.
He said wage growth was too weak to justify a rate hike and added that members of the bank’s Monetary Policy Committee were split on the issue, voting 5-3 to leave rates on hold last week.“Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank Rate increase. But all expect that any changes would be limited in scope and gradual in pace,” he said.
“From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anemic wage growth, now is not yet the time to begin that adjustment,” Carney added.
Carney also underlined that he “would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations”.
