Bank of England’s Carney hints at interest-rate cut

Sterling dropped to a two-week low after the outgoing Bank of England governor hinted at a possible rate cut if the economy doesn't rebound

Bank of England Governor Mark Carney signalled that the central bank could cut interest rates if the weak economy persists, sending the pound to a two-week low.

Speaking at a conference in London, the outgoing governor said the central bank could respond “promptly” if the UK economy doesn’t strengthen soon.

Carney, who is due to leave his post in March, warned that there’s no guarantee that growth will rebound, even though businesses now have more certainty over Brexit.

“This rebound is not, of course, assured. The economy has been sluggish, slack has been growing, and inflation is below target. Much hinges on the speed with which domestic confidence returns,” he said.

He said risks remained from sluggish global growth and from uncertainties over the future trading relationship with the European Union.

Following Carney’s downbeat comments, the pound fell as much as 0.6 per cent to $1.3018, its lowest level since December 27. It also weakened as much as 0.6 per cent to 85.28 pence per euro.

Despite signs of optimism among businesses following Prime Minister Boris Johnson’s landslide win last month, which confirmed the country is set to leave the European Union on January 31, many economic indicators remain downbeat.

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The rise in consumer confidence after the election failed to boost festive spending, as shown in the lacklustre Christmas trading updates of several UK retailers.

Industry body British Retail Consortium said total sales fell 0.1 per cent in 2019, marking the first annual sales decline since 1995.

Two policymakers on the Monetary Policy Committee voted for a rate cut in November and December, even though the majority voted to keep rates unchanged.

“Economic data for January and February will be key in determining whether any other members of the Bank’s MPC join the two who voted to cut rates at the previous two meetings,” said Andy Scott, associate director at financial consultant JCRA.

FURTHER READING: Uncertain future for UK economy

FURTHER READING: British retailers see worst year on record in 2019

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