Bank of England governor Mark Carney has signalled that UK interest rates are set to remain low to keep growth on track as the country negotiates Brexit.
His comments at the annual Mansion House lunch in the City of London immediately caused the pound to fall a cent against dollar, though the FTSE 100 rose dramatically by 40 points before falling back.
Mr Carney said the stimulus measures introduced last summer to stabilise the economy after the Brexit referendum were working.
“Credit is widely available, the cost of borrowing is near record lows, the economy has outperformed expectations, and unemployment has reached a 40-year low.”
He added that different members of the Bank’s monetary policy committee (MPC) would have different views on the potential timing of any interest rate increase. “But all expect that any changes would be limited in scope and gradual in pace,” he said.
“In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations.”
Also speaking at the Mansion House lunch, UK Chancellor Philip Hammond pledged to keep Britain’s doors open to overseas workers needed to keep the country running – and vowed not to go on an economic spending spree.
Despite losing their House of Commons majority in the general election to a resurgent Labour party, which campaigned on big increases in public spending, Mr Hammond said the higher taxes required to pay for more spending would stifle growth.
He accepted that Britain was “weary after seven years of hard slog repairing the damage of the great recession”.
But he added: “We must not lose sight of the unchanging economic facts of life. Funding for public services can only be delivered in one of three ways: higher taxes; higher borrowing; or stronger economic growth.
“And only one of those three choices is a long-term sustainable solution for this country in the face of the inexorable pressure of an ageing population.
“Higher taxes will slow growth, undermine competitiveness, and cost jobs, so the government will remain committed to keeping taxes as low as possible.”