NEWCASTLE, England (Reuters) – Bank of England Governor Mark Carney on Thursday raised expectations of an interest rate hike next month and said he was increasingly confident that the weak start to the year in the British economy mainly reflected bad weather.
The pound sterling peaked against the dollar after Carney said inflationary pressures had remained firm, as the Bank of England had expected, and there was widespread evidence that the slack in the economy had been largely exhausted.
Carney also warned about the possible costs of a trade war in a speech a week before US President Donald Trump is due to visit Britain.
Last month, investors were surprised when three out of nine BoE rate issuers, more than expected, voted in favor of an immediate rate hike, increasing the chances of a rise in August.
There was nothing in Carney's comments that cast doubt on that opinion, now the consensus among economists consulted by Reuters.
"At the national level, the data received has given me greater confidence that the smoothness of UK activity in the first quarter was due mainly to weather, not the economic climate," Carney said in a speech in Newcastle. , to the north of England.
"In general, recent internal data suggest that the economy is evolving to a large extent in line with the projections of the May Inflation Report, which see demand growing at slightly higher rates than supply and the pressures of internal costs. "
When asked if households They would be right to expect an increase in rates this year, Carney said that surveys showed that three-quarters of the expected rates of households would increase "over the course of next year," increasing "a little, but not so much."
He said that, in general, he considered those expectations reasonable.
Officials would have enough information to make a decision on rates in August, Carney said, despite not having economic growth figures for the second quarter due to changes in the data publication schedule of the statistics agency of Britain.
COST OF TRADE WAR
In his speech at the Business Summit of Northern Powerhouse, Carney said that protectionist sentiment had increased, citing an increase in commercial tariffs for United States and retaliatory measures adopted by other countries.
There are indications that a "hostile and uncertain" business environment has attenuated global economic activity, he said.
If a sustained trade war arose, reduced productivity growth would be expected to aggravate losses to the economy through reduced trade, Carney said.
"The Brexit experience underscores that the impact of the global trade war will be greater the more business confidence is affected, the harder the financial conditions and – more fundamentally – the more permanent the loss of openness will be," Carney said. .
In Brexit, Carney said that the expectations of the Bank of England are maintained for a smooth transition as Britain leaves the European Union, but added that the uncertainty had hurt the investment.
Companies "have wondered if changes in trade agreements will require them to change suppliers or find new clients, either to expand production or even to close certain activities," he said.
Report by David Milliken in Newcastle, written by Andy Bruce, Edition by William Schomberg and Gareth Jones