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Chancellor [sic] Mark Carney said on Tuesday that there were limits to the central bank's ability to ignore the effect of sterling's slide on inflation, as policymakers consider whether to cut interest rates next week.
Carney also told lawmakers that political criticism would not influence his decision on whether to extend his time at the BoE, but warned that any interference with its independence would hurt the currency and push up government borrowing costs.
The pound slumped on Tuesday to its lowest level since the Oct. 7 'flash crash' but recovered some of its losses as Carney spoke to a committee in Britain's upper house of parliament.
"There are limits to the willingness of the Monetary Policy Committee to look through an overshoot of inflation," he said, describing the depreciation of sterling in recent weeks as "fairly substantial".
The BoE would "undoubtedly" take sterling's weakness into account at its rate-setting meeting next week, he said.
In early September the central bank said it was likely to cut rates again this year if the economy slowed as it expected. But sterling's weakness and unexpectedly robust economic data have prompted most economists to rule out a Nov. 3 rate cut.
Rating agency warns further sharp declines will undermine the pound’s position as a reserve currency
S&P Global Ratings has called into question the pound’s future as one of the world’s reserve currencies as the rating agency affirmed its decision to strip Britain of its top credit rating following the vote for Brexit in June.
Sharp falls in the UK currency that have followed the referendum could ultimately “reduce confidence and eventually threaten its role as a global reserve currency”, S&P said in a review of the country published late on Friday.
Sterling has shouldered the bulk of the strain as investors grapple with the implications for the UK economy once it has exited the EU. It has fallen almost a fifth against the dollar since the vote with the scale of the decline raising the likelihood of higher inflation next year.
“Were sterling’s share of allocated global cental bank reserve holdings to decline below 3 per cent, we would no longer classify sterling as a reserve currency and this would negatively affect our external assessment,” S&P said.
While the dollar is the global reserve currency, the pound still has a share of just under 5 per cent of central bank foreign exchange reserves, according to the latest figures from the IMF.
Despite better than expected third-quarter GDP figures published this week, S&P warned that Brexit still presents a significant risk to the UK’s economic record.
The rating could be lowered further from AA if “we conclude that sterling will lose its status as a reserve currency or if public finances or GDP per capita weaken markedly beyond our current expectations”.
Some argue the weaker pound could prove a boon for Britain’s exporters and helping to close a large current account deficit.
S&P stripped the UK of its triple A status in late June, calling the referendum a seminal moment for the country.
Earlier this month, prime minister Theresa May announced that the government would invoke the Article 50 exit clause by March 2017, setting in motion the UK’s exit from the EU.
Mrs May’s insistence that Britain will not “give up control” of immigration has led investors to speculate that the UK will prioritise border control over access to the single market, while comments from European Council president Donald Tusk, suggest EU policymakers will not be keen to accommodate the UK.
The U.K. must hold a vote in Parliament before starting the two-year countdown to Brexit, a panel of London judges decided, likely setting up a constitutional confrontation at the country’s Supreme Court next month.
“If notice is given under Article 50, it will inevitably have the effect of changing domestic law,” Judge John Thomas said Thursday, delivering a decision that is a setback for Prime Minister Theresa May’s plan to unilaterally start the process by the end of March by invoking Article 50 of the Lisbon Treaty.
The pound -- the worst-performing major currency before the ruling -- rose to a three-week high against the dollar Thursday as investors speculated that the decision could force May to dilute her push for a so-called hard Brexit. The government said it will appeal, and the Supreme Court has already set aside time for a hearing between Dec. 5 to Dec. 8.
Honestly, I think this is very unfair to the people of the UK. They decided to leave, they were told that it was up to them, that if they voted yes, then that's what would happen. Now, it's up to parliament or the best lobbyists to decide what will happen and when. The whole thing makes me kind of sad, to be honest.
"Whoah! Bessie is commin straight for us!!!!!!! Or is that a tsunami?!?"
As one of the 48.1% who are still absolutely stunned that Rupert Murdock / News Corporation managed to whammy the other guys, it makes me very happy.
Mostly as I have to send myself some money so that bump has good timing.
That man is the greatest threat to our English speaking democracies in modern (or all?) history. UK, Australia, USA, he has screwed up all of them.
I don't think they voted on hard or soft Brexit, whichever is now best for the people (given facts coming to light) should be decided by parliament not a cabal within it IMO.