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Carney: Outlook for base rate still uncertain but UK growth to slow

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  • 17/01/2017
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Carney: Outlook for base rate still uncertain but UK growth to slow
The direction of UK interest rates remains unclear but the higher cost of imports is likely to weigh on incomes and consumption in the coming months, said Bank of England Governor Mark Carney.

Speaking at the London School of Economics last night the governor outlined the tension between consumer strength supported by the low cost of credit and the stock markets’ low expectations for the UK.

He said: “Evidence from the past quarter century across a range of countries suggests episodes of consumption-led growth tends to be both slower and less durable. This is because consumption growth eventually outpaces earnings growth, increasing debt and making demand more sensitive to changes in employment and income.”

Consumer borrowing has accelerated notably. In the year to November, total household borrowing rose 4%, and consumer credit rose over 10%, the fastest rate since 2005.

“How household spending evolves, and the inter-temporal trade-off that households strike, will be important considerations over the next year,” said Carney.

After seven-and-a-half years at 0.50%, the Bank cut base rate to 0.25% in August last year simultaneously launching the Term Funding Scheme available for four years.

Prime Minister Theresa May gave her first policy speech on Brexit today and promised to take Britain out of the EU single market. The pound hit a session high of $1.2342, up 2.5% keeping its momentum after she spoke of a “balanced approach” to Brexit during her remarks.

 

 

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