UK at ‘maximum uncertainty’ over Brexit but businesses ready to ‘unleash’ demand rebound, Carney says
The UK has reached the "maximum point of uncertainty" on Brexit but businesses could "unleash" a rebound in demand and investment once clarity arrives, the Bank of England governor has said.
His comments came after the bank's monetary policy committee (MPC) indicated interest rates may rise at a quicker pace in the coming year in the event of smooth Brexit deal.
The pound rallied on the suggestion of a faster pace of rate hikes, climbing 1.2 per cent to $1.29 against the dollar.
The MPC decided to keep interest rates unchanged at 0.75 per cent on Thursday following its November meeting.
BoE governor Mark Carney said businesses were taking a cautious approach but once clarity was given over a deal and its implementation, investment and demand would grow.
Hours before his comments, the IHS Markit / CIPS Purchasing Managers’ Index (PMI), revealed manufacturing orders dropped in the UK last month for the first time since july 2016.
Carney said: "From all the surveys, including PMI this morning, and conversations we are having with businesses, we are seeing that businesses are taking a very cautious approach.
"We are at the point of maximum uncertainty, or at least close to it, and we are getting some sense of what is being held back, some sense of what could be unleashed with clarity."
The governor stressed that a no-deal Brexit was a less likely outcome and admitted Theresa May's Chequers plan was "better than average" when compared to the bank's range of outcomes.
The MPC also said the monetary policy response to Brexit would not be automatic and could go in either direction depending on the nature of the deal and the transition.
It said the UK economy was growing “just above its speed limit” and if continued to develop in line with its projections, monetary policy would be tightened to return inflation to the two per cent target.
Carney also said the bank was "quietly confident" in the preparation of the UK's major banks and financial institutions in the event of all possible Brexit outcomes.