Bank of England Gov. Mark Carney Tuesday said that while rate setters' tolerance for above-target inflation is coming to an end, it is too early to raise the key interest rate for the first time in a decade.
In a rescheduled speech to bankers at Mansion House in London, Mr. Carney said weak wage growth raised questions about the strength of domestic inflationary pressures, and he was unsure how the economy would respond to talks between the U.K. government and the rest of European Union on the terms of their separation.
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"From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anemic wage growth, now is not yet the time to begin that adjustment," he said.
After Mr. Carney's comments the pound fell 0.5% to $1.2674.
The pound's depreciation since the June 2016 vote to leave the EU has pushed up import prices and inflation. At its meeting earlier this month, the BOE's Monetary Policy Committee voted to leave the key interest rate unchanged at a record low of 0.25%.
However, three members dissented in favor of raising the Bank rate, the largest vote for such a move since the central bank last tightened policy in July 2007.
"Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank rate increase," Mr. Carney said. "But all expect that any changes would be limited in scope and gradual in pace."
Mr. Carney voted to leave the rate unchanged, but his comments suggest he views an increase as inevitable, although possibly some months away.
"Arguing to wait and see how the economy will react to the Brexit negotiations--which have only just begun and will last at least two years--suggests that Carney may be prepared to delay raising rates for a long time," said Allan Monks, an economist at J.P. Morgan.
Mr. Carney had been scheduled to deliver his speech Thursday, but the event was postponed as a show of respect to those who died or were left homeless in the Grenfell Tower fire.
That tragedy came amid a series of four terror attacks in as many months, and just a year after the murder of lawmaker Jo Cox led to the rescheduling of Mr. Carney's previous Mansion House speech.
"The best tribute this city and this country can give to the memories of those lost is to renew our shared commitment--whatever our differences--to promote the common good," he said. "This includes pursuing a Brexit, and building an economy, that works for all."
In his speech, Mr. Carney also addressed the problem of large trade imbalances, which he said were now "politically as well as economically unsustainable."
His proposed solution is a drive by the Group of 20 largest economies to allow trade in services to be as free as trade in goods. This, he said, would remove an impediment to economies that are more dependent on services exports--such as the U.S. and U.K.--and allow them to narrow their trade gaps with countries that are more reliant on goods exports, such as Germany and China.
"The G-20 faces a choice--between leveling down by putting more restrictions on goods trade, or leveling up by liberalizing trade in services," he said.
Mr. Carney estimated that "leveling up" would reduce the "excess deficits" of the U.S. by one third and the U.K. by one half.
Speaking before Mr. Carney at the Mansion House event, U.K. Treasury chief Philip Hammond echoed those sentiments.
"For the U.K. to be able to share fairly in the benefits of globalization, we need to lead a global crusade for liberalization of services," he said. "And we must employ that logic in our Brexit negotiations, to agree a bold and ambitious free-trade agreement with our EU counterparts that covers both goods and services."
The central banker identified the treatment of financial services in the Brexit talks, which started Monday, as an opportunity to put this new approach to trade into operation.
He also warned against fragmenting Europe's clearing market, responding to a plan proposed by the EU's executive arm last week that would subject clearinghouses operating outside the bloc to tougher oversight, including on-site inspections and access to financial accounts.
"Fragmentation is in no one's economic interest," he said. "Nor is it necessary for financial stability. Indeed it can damage it."
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(END) Dow Jones Newswires
June 20, 2017 06:10 ET (10:10 GMT)