Britain’s central bank has backed off its plans to further reduce interest rates.
Governor Mark Carney said the UK has a “dynamic, flexible economy” which is doing better than had been feared after the vote to leave the European Union, so there is no need for extra stimulus right now.
The Bank raised its forecasts for both growth and inflation next year and said the cost of borrowing could go up or down depending on what happens with those two key economic elements.
Carney told reporters at a news conference: “You can envisage scenarios where it goes either way. We don’t have a bias in terms of direction of where the next move will be. Again, in a period of a fair bit of uncertainty you can envisage scenarios where either direction would be merited. Where we are going to be anchored is around the inflation target and making sure we get that trade-off right.”
The central bank sharply adjusted its view of when Britain’s economy will feel the pain of June’s Brexit decision.
In quarterly forecasts published on Thursday, it predicted less of a short-term impact but warned that Britain’s access to EU markets could be “materially reduced” which would hurt growth over “a protracted period”.
Pound gets double boost
Earlier on Thursday, the pound had risen in value against the dollar and the euro following a court ruling that the UK parliament has to be allowed to vote on Brexit.
Sterling jumped even higher when it became known interest rates were not going to fall further.
But Carney warned the UK currency’s post-Brexit vote slump will push up inflation higher than the bank would like.
The BoE’s Monetary Policy Committee said in a statement as it forecast inflation would jump to 2.7 percent this time next year, nearly triple its current level, adding: “There are limits to the extent to which above-target inflation can be tolerated.”
Inflation was only expected to return to the BoE’s target of around 2.0 percent in 2020.
Carney said the pound has been driven down by the concerns of the financial markets about Britain’s economic prospects and the UK’s future trading arrangements with the European Union.
And the Bank of England Governor pointed out higher inflation will mean reduced purchasing power for Britons for at least the next three years.