Bank of England will tolerate inflation overshoot says Mark Carney

14th October 2016

The Bank of England governor Mark Carney says the Bank is likely to tolerate an overshoot in the level of UK inflation in the next few years given its concerns that around 400,000 to 500,000 people could lose their jobs otherwise due to Brexit turmoil.

While the Bank’s decision to cut base rates to 0.25% did not have an appreciable impact on sterling, the increasingly likelihood of hard Brexit following the Conservative Party conference certainly has, with sterling now trading at around $1.22.

Typically a lower currency, while boosting export orientated business and manufacturing, will drive inflation as the price of imports rises.

This risk has been cast into sharp relief this week as Unilever and Tesco were embroiled in a temporary standoff as the giant supplier attempted to raise its prices by 10%. That row has now been resolved, but most believe it does signal price pressure in the UK particularly on food.

Speaking at an event in Nottingham Mark, Mr Carney said: “Our judgment in the summer was that we could have seen another 400,000-500,000 people unemployed over the course of the next few years. So we’re willing to tolerate a bit of overshoot in inflation over the course of the next few years in order to avoid that situation, to cushion the blow.”

Carney said that first affected will be food, then goods and services. He has also acknowledged that poorer people will be hit harder by inflation.

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