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Mark Carney has said the process of the UK’s consumer led slowdown has begun after an uncharacteristic spending spree that drove the British economy in the wake of the Brexit vote.
Unveiling the BoE’s latest outlook on the economy, Mr Carney said the wage growth has come in “notably lower than expected” as inflation has been on the up but should pick up significantly as the job market tightens in the coming years.
“With wage growth moderating and inflation picking up, household spending and GDP growth have slowed markedly”, said Mr Carney in a press conference on Thursday.
The BoE has edged down its GDP forecast for the UK this year to 1.9 per cent from 2 per cent, but raised it by 0.1 percentage points in 2018 and 2019. These projections were contingent on the UK achieving a “smooth Brexit” from the EU, said the BoE.
Should the forecasts come in line with projections, the BoE’s monetary policy committee would need to raise rates faster than markets are currently pricing in, added Mr Carney.
“On the whole, the committee judges if the economy follows the path [implied], then monetary policy could need to be tightened more [than current market expectations”, said the governor.
Laying out the BoE’s definition of a “smooth Brexit”, Mr Carney said this entailed an agreement on a future EU trading arrangement and a transition deal as the UK extricates itself from the bloc.