May eyes continued spending curbs, Carney warns of Brexit risks

Prime Minister Theresa May and Bank of England governor Mark Carney separately warned about the effects of continues low interest rates and that Brexit was the biggest risk the UK faces, as both spoke at an event to celebrate the 20th anniversary of the Bank's independence.

Waxing political in a speech about free market capitalism almost two months ahead of her Chancellor's budget statement, the PM admitted an unfettered economic system does not work as well as it should but said giving up the government’s “balanced” approach to public spending would mean more borrowing and higher taxes, despite rising pressure to ease up on years of austerity.

"To abandon that balanced approach with unfunded borrowing and significantly higher levels of taxation would damage our economy, threaten jobs, and hurt working people," she said.

May's Conservative party have been criticised for overseeing a slump in household living standards as years of austerity policies accompanied stumbling wage growth and waves of high inflation, most recently sparked by the referendum vote to leave the European Union.

With interest rates still at rock bottom levels -- but poised for a slight hike if recent hints from Carney are to be believed -- May admitted the government needed to look to see if it should mitigate the side-effect of low interest rates on savers, having in the past called out the BoE’s low interest rates for their “bad side effects”.

Credit agency Moody’s last week downgraded its rating on British government debt by a further notch to Aa2 over concerns about the Brexit process and its effects on economic growth and the government's plans to bring down debt.

Carney used his speech to emphasise that the Bank used interest rates to "smooth transitions" and to try to reach the best trade-off between inflation and jobs in a difficult economic climate, and warned about the risks of Brexit.

"The biggest determinants of the UK’s medium-term prosperity will be the country’s new relationship with the EU and the reforms it catalyses. Most of the necessary adjustments are real in nature and therefore not in the gift of central bankers," he said.

"The Bank will do everything it can to support adjustment consistent with its statutory obligations. We will continue to assess and express our independent assessment of the risks associated with Brexit. We will also use all our powers, consistent with our remits, to mitigate those risks and to smooth the adjustment to new opportunities."