Mark Carney says his tolerance for faster inflation is limited, and the signs are that those limits will be tested.
As the Bank of England governor prepares to deliver his first speech of 2017 on Monday, a report that Prime Minister Theresa May is pushing toward a so-called hard Brexit is weakening the pound. Should that persist, it has implications for consumer prices, already rising at the quickest pace since 2014, and exacerbates the tensions facing policy makers who are trying to support economic growth without letting inflation get out of hand.
Sterling slid below $1.20 for the first time in more than three months after newspapers reported that May will signal in a speech on Tuesday her willingness to quit the European Union’s single market for goods and services to regain control of Britain’s borders and laws. It’s the outcome seen by many economists as the least desirable, and the one currency traders have fretted about since the U.K.’s June vote to leave the bloc.
“The main source of inflation does seem to be sterling and the pass-through is very clear and we’ve broken some key levels,” Steven Major, global head of fixed income research at HSBC, said on Bloomberg Television. “The question is whether it affects what the Bank of England is thinking or whether they view it as transitory.”
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