Carney hints at summer monetary easing

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Carney hints at summer monetary easing

Bank of England governor Mark Carney has warned monetary easing could take place over the summer building on his warnings on the economic impact of leaving the European Union.

Mr Carney, who warned in May that a Leave victory “could possibly lead to a technical recession”, used a speech yesterday (June 30) to reiterate the significant impact of the vote on the UK economy and future monetary policy.

“In my view, and I am not pre-judging the views of the other independent Monetary Policy Committee (MPC) members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” he said.

Measures could include cutting rates - which remain at their current historic low of 0.5 per cent - or introducing further quantitative easing.

The governor did not attempt to rescind previous warnings about the economic consequences of a Brexit vote, though he did stress that structures were in place to deal with changes in the longer term.

“Uncertainty over the pace, breadth and scale of these changes could weigh on our economic prospects for some time,” he said.

“While some of the necessary adjustments may prove difficult and many will take time, the transition from the initial shock to the restructuring and then building of the UK economy will be much easier because of our solid policy frameworks.”

The FTSE 100 was nearing 6,500 at the close of yesterday as it continued a recovery from initial falls in the wake of the referendum result, buoyed in part by Mr Carney’s comments. Sterling fell over the prospect of further loose monetary policy.

The governor also warned such policies alone could not offset severe economic shocks.

“The Bank of England has a plan to achieve our objectives, and by doing so support growth, jobs and wages during a time of considerable uncertainty,” he said.

“Part of that plan is ruthless truth telling. And one uncomfortable truth is that there are limits to what the Bank of England can do.

“In particular, monetary policy cannot immediately or fully offset the economic implications of a large, negative shock.

“The future potential of this economy and its implications for jobs, real wages and wealth are not the gifts of monetary policymakers.”

The bank is set to discuss the “range of instruments” at its disposal in its August inflation report.