Bank of England Governor Mark Carney will stay at the central bank an extra seven months until the end of January 2020 to help smooth Britain's departure from the European Union next year, finance minister Philip Hammond told parliament on Tuesday.
The pound has fallen below US$1.29 for the first time in almost a year on continuing worries Britain will leave the EU without a trade deal. Sterling also hit a nine-month low against the euro, and was down against the yen and Swiss franc.
Bank of England Governor Mark Carney said on Friday Britain faces an “uncomfortably high” risk of leaving the European Union with no deal, comments that drove sterling to an 11-day low against the dollar.
The Bank of England announced a rate hike despite ongoing uncertainty over the future of the U.K. economy. The Monetary Policy Committee voted unanimously for an increase in rates from 0.5 to 0.75% on the back of a strong labor market and credit growth.
Inflation in the UK remained at 2.4% in May, according to the Office for National Statistics (ONS), after its fall was halted by a sharp rise in fuel costs. The ONS said that fuel prices increased by the biggest monthly amount since January 2011, rising by 3.8%.
The Bank of England has backed off from raising interest rates as it slashed 2018 growth forecasts, but said the economy would bounce back from a weather-hit “soft patch”. Policymakers kept the prospect of rate hikes firmly on the cards, although it sparked confusion over when the next increase may come.
The UK economy grew at its slowest rate since 2012 in the first quarter of the year, the Office for National Statistics (ONS) has said. GDP growth was 0.1%, down from 0.4% in the previous quarter, driven by a sharp fall in construction output and a sluggish manufacturing sector.
The pound has continued its recent strong run against the dollar pushing firmly above US$ 1.43. It is the seventh session in a row that the pound has made gains against the US currency. The strong run means that, among the G10 group of rich nations, the UK has the best-performing currency this year.
The Bank of England signaled on Thursday that it remains on course to lift interest rates in Britain this year and next, as figures showed a yearlong squeeze on consumers caused by a steep fall in the pound appears to be coming to an end.
The Bank of England has indicated that the pace of interest rate increases could accelerate if the economy remains on its current track. Bank policymakers voted unanimously to keep interest rates on hold at 0.5% at their latest meeting. However, they said rates would need to rise earlier and by a somewhat greater extent than they thought at their last review in November. Economists think the next rate rise could come as soon as May.