Pound spikes as Carney signals hike in Bank Rate might be closer
The Monetary Policy Committee will need to tighten policy if the 'trade-off' facing policymakers continues to lessen, the Governor of the Bank of England said.
At its last rate-setting meeting on 14 June, the MPC concluded that continued hiring might indicate that the degree of spare capacity left in the economy was being eroded.
Hence, its tolerance for the current overshoot of its target by CPI inflation would be less.
On Wednesday, in remarks prepared for a speech at the ECB Forum on Central Banking in Sintra, Portugal Mark Carney said: "Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional."
Among the factors which the MPC would debate over the coming months, in order to determine the above were: to what extent weaker consumption was being compensated for by other components of aggregate demand, whether wages and labour costs were beginning to firm and how the economy reacted to tighter financial conditions and Brexit.
Carney also referenced signs that a rotation, at the global level, towards investment led growth and away from consumption might have begun.
Reacting to Carney's remarks, Martin Beck at Oxford Economics said: "Although ostensibly hawkish comments by Mark Carney this afternoon caused sterling to spike up, it is not clear that he was actually saying anything different from the message of his Mansion House speech last week.
"The Governor's view continues to be very much "wait and see", a line of thinking paralleled by one of Mr Carney's deputies, Sir Jon Cunliffe, in an interview earlier today."
As of 1547 BST, sterling was 1.18% higher against the US dollar to 1.2965.