This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/live/2017/oct/17/uk-inflation-wage-squeeze-mark-carney-bank-of-england-live

The article has changed 17 times. There is an RSS feed of changes available.

Version 5 Version 6
Bank of England's Mark Carney predicts inflation will keep rising after hitting 3% today - business live Bank of England's Mark Carney says inflation hasn't peaked yet after hitting 3% today - business live
(35 minutes later)
12.23pm BST
12:23
Q: When must a transition deal be agreed, before firms take matters into their own hands and trigger their contingency plans?
Carney won’t commit to a fixed date, but says the issue is particularly urgent for the City.
Transition deal needed by Q1 for financial sector, Carney says, for other sectors 'there is a bit of a lag'. So urgency greatest at banks
12.19pm BST
12:19
Carney: Businesses are losing faith in smooth Brexit
Q: How have businesses and consumers’ attitude to Brexit changed?
Mark Carney indicates that UK firms have become “less confident about a smooth transition” and less confident about the end state of Brexit.
Households are less worried, he says,
At present, household expectations are broadly consistent with a smooth outcome to a future arrangement.
But consumer confidence has fallen, partly due to lower real incomes (due to rising inflation).
Carney adds that financial markets are the most concerned - they have already priced in a significant adjustment to the UK’s future prospects, and they may have to ‘mark up’ the UK’s future performance [if Brexit goes better than some fear].
Updated
at 12.20pm BST
12.10pm BST
12:10
Q: What preparations are you making for Brexit?
Carney says the Bank of England has looked at worse-case scenarios, and what we can do to mitigate those risks.
That includes making sure that banks are sufficiently capitalised to handle a very bad outcome.
On the upside, the Bank could raise its growth forecasts if Britain agrees a “full, comprehensive, ambitious arrangement” with the rest of the EU.
.@catmckinnell asking about the basis of @bankofengland forecasting. Mark Carney: we have looked at worst case scenarios as well as the best pic.twitter.com/AZtaeduLEA
Updated
at 12.11pm BST
12.06pm BST
12:06
Carney: Need Brexit solutions on derivative contracts, insurance, data...
The Treasury committee are probing Mark Carney about how the trillions worth of derivatives contracts between the UK and other EU country members will be handled after Brexit.
Mark Carney says this cannot be resolved if Britain crashes out without a deal.
Q: Is a two-year transition period enough to resolve this problem?
Carney says that the best solution would be legislation that would “grandfather those contracts”, so that they could continue to be honoured after Brexit.
He also cites cross-border insurance (European companies and individuals who have taken out insurance from UK entities) and cross-border data concerns.
And...he repeats his argument that a hard Brexit would hurt Europe more than the UK on these issues.
There’s more data that is relevant to the EU in the UK than vice versa...
These issues are bigger for Europe than they are for us, but they’re material for us.
11.59am BST
11:59
Bang on cue, Mark Carney argues that a ‘no-deal’ Brexit poses a threat to Europe’s financial stability.
He tells the Treasury committee that Europe would be ‘short of financial services capacity’ in the short term, if Britain leaves the EU without a deal.
The entire economic impacts are greater for the UK, he says, but the financial stability impact is greater for the EU in the short term.
11.55am BST
11:55
Breaking: Britain faces long-term decline unless it secures “the closest possible economic relationship” with the European Union after Brexit.
That’s according to the Organisation for Economic Cooperation & Development (OECD), in its annual healthcheck on the UK economy.
More here:
11.50am BST
11:50
Carney argues that Britain and the EU will agree a transition deal, as avoiding a hard Brexit will be in everyone’s interests.
Carney says Uk needs a transition and Eu will agree. "There will ultimately be a transition... a transition agrmt is in everyone's interest"
There's no unilateral (i.e. no deal) solution to fixing 40,000 derivatives contracts that will be undeliverable after Brexit, says Carney
MArk Carney: BoE done preparations for "hard exit without any transition period" but much less in EU and its firms - on derivatives
11.47am BST11.47am BST
11:4711:47
Carney: EU banks aren't preparing for hard BrexitCarney: EU banks aren't preparing for hard Brexit
Carney is asked about concerns that some banks aren’t ready for Britain’s departure from the EU in 2019.Carney is asked about concerns that some banks aren’t ready for Britain’s departure from the EU in 2019.
He replies that European-based institutions have done much less preparation than UK banks for the possibility of a hard exit from the EU without any transition deal.He replies that European-based institutions have done much less preparation than UK banks for the possibility of a hard exit from the EU without any transition deal.
So we’re doing all those preparations for that. There has been much less of that done in the European Union, including by the member firms.So we’re doing all those preparations for that. There has been much less of that done in the European Union, including by the member firms.
11.44am BST11.44am BST
11:4411:44
Q: What would happen if the City of London’s euro clearing market moved abroad after Brexit?Q: What would happen if the City of London’s euro clearing market moved abroad after Brexit?
Carney warns that Europe’s real economy would suffer higher costs if the euro clearing market was fragmentedCarney warns that Europe’s real economy would suffer higher costs if the euro clearing market was fragmented
[currently, trillions of pounds, euros, dollars and yen-based derivatives contracts are settled in London, under a system of clearing houses set up to avoid a repeat of the financial crisis][currently, trillions of pounds, euros, dollars and yen-based derivatives contracts are settled in London, under a system of clearing houses set up to avoid a repeat of the financial crisis]
Q: So are you lobbying behind the scenes for talks on this issue to begin soon?Q: So are you lobbying behind the scenes for talks on this issue to begin soon?
Carney says the Bank of England would like the UK to have the go-ahead to start talks, with the BoE’s assistance when needed.Carney says the Bank of England would like the UK to have the go-ahead to start talks, with the BoE’s assistance when needed.
And he insists that breaking up the derivatives market would mean that European car makers and pension funds, for example, would pay more for financial transactions.And he insists that breaking up the derivatives market would mean that European car makers and pension funds, for example, would pay more for financial transactions.
11.37am BST11.37am BST
11:3711:37
Carney also points out that the Bank of England is already trying to stimulate the economy:Carney also points out that the Bank of England is already trying to stimulate the economy:
BOE's Carney: UK monetary policy is stimulative, fiscal policy is restrictive and UK faces a variety of headwinds. $GBP $Brexit.BOE's Carney: UK monetary policy is stimulative, fiscal policy is restrictive and UK faces a variety of headwinds. $GBP $Brexit.
11.36am BST11.36am BST
11:3611:36
11.34am BST11.34am BST
11:3411:34
Q: With interest rates at just 0.25%, the UK doesn’t have much room to cut if there is a recession. Wouldn’t it be wise to raise borrowing costs to give the Bank more ammunition when needed?Q: With interest rates at just 0.25%, the UK doesn’t have much room to cut if there is a recession. Wouldn’t it be wise to raise borrowing costs to give the Bank more ammunition when needed?
Carney isn’t at all convinced that this is a good idea. He explains to the committee that the Bank’s job is to keep inflation at 2% in the medium term. Raising rates today so you can cut them tomorrow wouldn’t really fit with that remit.Carney isn’t at all convinced that this is a good idea. He explains to the committee that the Bank’s job is to keep inflation at 2% in the medium term. Raising rates today so you can cut them tomorrow wouldn’t really fit with that remit.
As Carney puts it:As Carney puts it:
Building a war chest in interest rate terms for a potential future shock, isn’t staying on point in terms of the inflation target, nor is it appropriate or necessary given that policy can move quite nimbly if required.Building a war chest in interest rate terms for a potential future shock, isn’t staying on point in terms of the inflation target, nor is it appropriate or necessary given that policy can move quite nimbly if required.
11.31am BST11.31am BST
11:3111:31
Carney signals importance of UK-EU trade dealCarney signals importance of UK-EU trade deal
Q: Are you concerned that the UK’s net international investment position has been revised down by £490bn (as reported by the Daily Telegraph yesterday)?Q: Are you concerned that the UK’s net international investment position has been revised down by £490bn (as reported by the Daily Telegraph yesterday)?
Carney says that the stock of UK assets, as opposed to the flows, is quite healthy.Carney says that the stock of UK assets, as opposed to the flows, is quite healthy.
He points out that Britain still owns a lot of assets in the rest of the world (but not as much as previously thought). And the fall in the pound actually improves that position.He points out that Britain still owns a lot of assets in the rest of the world (but not as much as previously thought). And the fall in the pound actually improves that position.
The UK owes a lot in sterling, and owns a lot in foreign currency assets.The UK owes a lot in sterling, and owns a lot in foreign currency assets.
With the depreciation [of the pound] you get a positive move.With the depreciation [of the pound] you get a positive move.
Carney also warns that the “sustainable level” for Britain’s current account deficit (which is running a hefty deficit) will ultimately depend on the future trade relationship with Europe.Carney also warns that the “sustainable level” for Britain’s current account deficit (which is running a hefty deficit) will ultimately depend on the future trade relationship with Europe.
11.24am BST11.24am BST
11:2411:24
Carney: Inflation likely to keep rising, thanks to weak poundCarney: Inflation likely to keep rising, thanks to weak pound
Mark Carney, governor of the Bank of England, is testifying to the Treasury Committee now.Mark Carney, governor of the Bank of England, is testifying to the Treasury Committee now.
It’s being streamed live, here.It’s being streamed live, here.
Q: Inflation has risen to 3% - only 0.1% away from the level when you must write a letter to the chancellor explaining why you have missed your target. Do you expect to write a letter soon?Q: Inflation has risen to 3% - only 0.1% away from the level when you must write a letter to the chancellor explaining why you have missed your target. Do you expect to write a letter soon?
Carney says it is “more likely than not” that he will write to Philip Hammond in the next few months to explain why inflation is more than one percentage point away from 2%.Carney says it is “more likely than not” that he will write to Philip Hammond in the next few months to explain why inflation is more than one percentage point away from 2%.
He says the fall in the pound since the Brexit vote means inflation is likely to rise over 3% “in the coming weeks”.He says the fall in the pound since the Brexit vote means inflation is likely to rise over 3% “in the coming weeks”.
He reminds the committee that the Bank of England signalled prior to the referendum that the pound would be hit by a vote to leave the EU.He reminds the committee that the Bank of England signalled prior to the referendum that the pound would be hit by a vote to leave the EU.
We expected sterling to fall sharply. It did. That passes through to prices....We expected sterling to fall sharply. It did. That passes through to prices....
The sole reason that inflation has gone up as much as it has is the depreciation of sterling.The sole reason that inflation has gone up as much as it has is the depreciation of sterling.
11.22am BST11.22am BST
11:2211:22
Sign up to our emailSign up to our email
Guardian Business has launched a daily email.Guardian Business has launched a daily email.
Besides the key news headlines that you’d expect, there’s an at-a-glance agenda of the day’s main events, insightful opinion pieces and a quality feature to sink your teeth into each day.Besides the key news headlines that you’d expect, there’s an at-a-glance agenda of the day’s main events, insightful opinion pieces and a quality feature to sink your teeth into each day.
For your morning shot of financial news, sign up here:For your morning shot of financial news, sign up here:
11.18am BST
11:18
Larry Elliott: Pensions to rise as inflation hits five-year high
Here’s our economics editor, Larry Elliott, on today’s inflation report:
Britain’s pensioners will receive a 3% increase in their state income next year after the annual inflation rate reached its highest level since early 2012 last month.
The 12-month increase in the cost of living as measured by the consumer prices index (CPI) edged up from 2.9% to 3% - in line with recent Bank of England forecasts.
Any further increase would force Mark Carney, the governor of the Bank of England, to write a letter to the chancellor, Philip Hammond explaining why inflation was not being kept to its 2% target. The City expects the Bank’s monetary policy committee to raise interest rates next month for the first time in more than a decade.
Inflation has risen from 1% to 3% over the past year, largely due to the fall in the value of the pound, which has made imports dearer.
The Office for National Statistics said the cost of fuel and raw materials for industry were up by 8.4% on a year ago compared with a 7.6% increase in the 12 months to August. It said more expensive food and a smaller fall in air fares than a year ago were the main factors explaining higher inflation, although clothes had come down in price.
The pick-up in inflation means the state pension will rise by at least 3% next year because the so-called triple lock means it rises by the September inflation rate, the September increase in annual earnings or 2.5%. Annual earnings are currently rising by just over 2%.
More here:
11.16am BST
11:16
Richard Partington
Back in parliament, new Bank of England policymaker Silvana Tenreyro has been quizzed by the Treasury committee.
Tenreyro told MPs that she could vote for an interest rate rise in the coming months, but only if the data justified it.
She said evidence from US studies of interest rate hikes and cuts showed that a premature move to increase the cost of borrowing “can be costly”.
[Studies show that] if it turns out to be a mistake it will require a lot more cuts in the future in order to recover that lost ground”
Tenreyo is among the majority of MPC members who would vote for a rate hike in the coming months, as articulated at their last meeting in September. But she may hold back from voting to raise rates if the data paints a weaker picture of the economy.
“My position now is that if the data outturns are consistent with the picture i’ve just described, of an output gap going towards zero, then i would be minded to vote for a bank rate increase in the coming months. However that’s very contingent, and i should be clear, on the data outturns. If the data undershoots and the data are not in line with those expectations then i will wait until i see further evidence of that output gap being eroded.”
Tenreyo also thinks the UK is some way from removing its package of quantitative easing support for the economy.
“We are still far from that point at which we will start unwinding given that the bank rate is so low.”
Tenreyro also told MPs that her experience growing up in Argentina would be valuable. That raised some eyebrows..... hopefully the UK won’t be turning to the IMF anytime soon.....
Silvana Tenreyro on why she brings something unique to the MPC"I grew up in a developing country, subject to many crises".Not reassuring
11.09am BST
11:09
Labour MP Angela Rayner tweets:
UK inflation climbs to highest level since April 2012 on the same day as the TUC&trade unions lobby parliament for fair pay in public sector
11.08am BST
11:08
IFS: Rising inflation means benefits freeze cuts deeper
The well-respected Institute for Fiscal Studies makes in important point.
The rise in inflation means the government’s policy of freezing benefits is causing more pain than anticipated.
When govt announced benefits freeze, expected 4.8% real cut in benefits. Now rising #inflation means 6.7% cut. https://t.co/zFG4q1QQO5 pic.twitter.com/6iIzvpbRnF
Paul Johnson, head of the IFS, says the whole policy is discredited.
Whatever you want to achieve benefits freeze is bad policy. Inflation has turned out higher than expected so poor hit harder than intended https://t.co/dkxe55w0U4
Could Philip Hammond make changes in next month’s budget? It’s possible, but the problem is that letting benefits rise in line with inflation would cost money. And the chancellor doesn’t have much of a war chest to play with...
10.56am BST
10:56
Brexit uncertainty hits London house prices
In other news, UK house price inflation has picked up -- but not in London.
Average house prices in the UK rose by 5.0% in the year to August 2017, up from 4.5% in July 2017.
However, prices in the capital actually fell during the month, and are only 2.4% higher than a year ago.
That might help some younger people to get onto the housing market (although the average London house price is still £484,000).
Richard Snook, senior economist at PwC, points out that prices in the financial district have taken a serious knock.
The uncertainty over Brexit may be felt more keenly in London than other areas due to the importance of international businesses.
Figures from the City of London borough bear this out where prices are down 18.4% compared to a year ago.
The North/ South divide:House prices in the City of London borough down 18.4% 👇North West up 6.5% 👆
10.44am BST
10:44
Amit Kara of the NIESR thinktank warns that UK inflation could keep rising in the next few months:
Our Head of UK Macroeconomic Forecasting reacts to CPI figure out today #inflation #BoE #interestrates pic.twitter.com/Q1vuJ2WbOf
10.37am BST
10:37
BoE deputy governor: I didn't think rate rise was close
Richard Partington
Newsflash: The Bank of England’s newest deputy governor has revealed that he isn’t one of the policymakers who believe interest rates need to rise soon.
Sir Dave Ramsden has told the Treasury Committee that he wasn’t among the majority at last month’s meeting who said that they were close to voting for a hike.
Instead, Ramsden took the view that the UK economy was ready for higher borrowing costs.
The majority of MPC members saw a case for removing some of the monetary stimulus in the coming months. I wasn’t in that majority.
This was my first ever MPC member as a voter. I wasn’t in a position where I was part of that majority that thought - the way the degree of slack was diminishing, the way trade off between slack and higher inflation was disappearing - was sufficient to give that signal.
*RAMSDEN WASN'T IN MPC MAJORITY SEEING HIKE IN COMING MONTHS
Dave the Dove
10.34am BST
10:34
Scotiabank also blame the weak pound for driving inflation up:
Scotiabank inflation analysis; “The acceleration in the CPI has been almost entirely due to the weakness of the GBP exchange rate.”
10.30am BST
10:30
Why Brexit vote has driven inflation up
It’s clear that the slump in the pound after last year’s EU referendum is the main factor driving UK inflation up.
These charts show how the cost of goods has spiked over the last year. Britain is a net importer of actual stuff, so a weaker pound means it’s simply more expensive to bring raw materials and finished products into the country.
UK #CPI @ 3.0% YoY still being predominantly driven by imported goods prices. Core inflation, producer prices, wages & (less tradeable) services prices flat-lining. Tough call for #BOE beyond November #MPC pic.twitter.com/JEmWoMg74P
In contrast, the eurozone’s inflation rate was just 1.5% in September, meaning most Europeans should be enjoying real wage rises.
Open Britain, the campaign group against a Hard Brexit, argues that Britain can’t afford to lose full access to the Single Market.
Inflation has increased to 3% -the highest of any major EU economy. It's time for Gov to put Single Market back on negotiating table. Pls RT pic.twitter.com/372g3UaTRU
Nick Dixon, investment director at Aegon, fears that the pound could suffer fresh losses if Britain and Brussels don’t achieve progress in the Brexit taslks.
While there are signs of a slowing economy, with sterling still at risk as Brexit negotiations remain inconclusive the British economy remains vulnerable to further inflationary forces.
10.22am BST
10:22
UNISON, the public sector union, argues that the government needs to produce a ‘decent pay rise’ to make up for years of austerity.
General secretary Dave Prentis says:
“There’s no light at the end of the tunnel for public service workers. Unfunded, below-inflation pay awards are apparently the best the government has to offer.
“All public servants have seen the value of their pay fall year on year. They need a decent pay rise that more than matches the rising cost of living.”