LONDON (Reuters) - Bank of England Governor Mark Carney and other British monetary policymakers are speaking at a news conference after the Bank published its quarterly Inflation Report.
Below are comments from Carney at the news conference.
ECONOMY AND INTEREST RATES
- The economy has started to head back towards normal. The Monetary Policy Committee's forecast sees the prospect of the economy moving from a recovery supported by household spending to an expansion sustained by business investment; from falling to rising real wages; and from employment to productivity growth to support those wage increases and improve export competitiveness.
- As time has moved on and the recovery has been sustained, the economy has edged closer to the point at which bank rates will need gradually to rise. The exact timing of this will inevitably be subject to considerable speculation and interest.
- The ultimate answer will depend on the evolution of the economy, particularly the degree of slack, the prospects for its absorption in the broader inflation area outlook.
- When the time does come to begin to remove stimulus we will defer asset sales, at least until the bank rate has reached a level from which it could be cut materially.
- As we progress, we will get to a welcome moment where the economy is headed far enough back towards normal that there will be the first adjustment in bank rate. But that remains to be seen as a decision for another day.
ECONOMIC SLACK
- There has probably been a modest narrowing in the margin of spare capacity over the past three months, as we had expected in February. Companies appear to be operating at around normal levels of capacity, but despite recent progress, significant slack remains in the labour market.
- Overall, while there is a range of views on the Committee, our best collective judgement is that the margin of spare capacity likely remains in the region of 1-1.5 percent of GDP.
INFLATION, PAY
- The outlook for inflation in the medium term remains benign. In the past three months, pay growth has edged up as expected and is likely to continue to do so as productivity growth improves and labour market slack diminishes, reaching around 2.5 percent by the end of the year.
- We are only beginning to get to the point where we have thought, really for the last six months or so, that we would start to see real wage growth happen. It hasn't happened yet.
- We have very modest assumptions on productivity. We do not close any of the gap that has opened up over the course of the last six years between this economy and other economies.
HOUSING
- We view monetary policy as part of the framework as the last line of defence against financial stability risks, and one example of the risks to financial stability which you have highlighted could come from the housing market.
- Monetary policy wouldn't be the right tool (to deal with a housing bubble) at least in our framework.
INTERNATIONAL RISKS
- While risks around the euro area are now two-sided around a modest growth rate, there are downside risks from the consequences of the rapid growth of shadow banking in China.
- More broadly the MPC is alert to vulnerabilities from a reassessment of risk in financial markets, perhaps prompted by geopolitical developments or uncertainties about the normalisation of monetary policy. Despite a more complex global environment, implied volatilities in many markets are well below their long-term averages.
(Reporting by Brenda Goh, Karolin Schaps, Sarah Young, Editing by Belinda Goldsmith)