Financial Times: Brexit most likely cause of rate path adjustment – BoE

02 November 2017

The central bank warned Brexit was having a “noticeable impact” on the UK’s economic outlook as it increased interest rates for the first time in a decade, with “considerable risks” for how households, businesses and financial markets respond to Britain’s withdrawal from the trading bloc.

Greater clarity over the Brexit deal is likely to affect how the economy functions and to change the economic outlook, Mr Carney said, and so a recalibration of monetary policy would be expected to follow that.

Markets only really expect rates to go in one direction — Mr Carney pointed out that market yields (at least ahead of today’s decision) incorporate two further quarter percentage point increases over the next two years. But the governor was careful to caution at the press conference that the consequences of a resolution on Brexit are not automatic for the path of inflation, stressing that it does not necessarily go in just one direction.

The Bank also emphasised that it would be “nimble” in response — depending on how negotiations go — because of the complicated mix of changes in supply, demand and the exchange rate, and the trade offs between them. [...]

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