Bank of England Governor Carney testified to the Treasury Select Committee on the issue of financial stability and there were, therefore, only very limited comments on the economic outlook and monetary policy.
There were, however, comments that the most recent economic data suggested that there could be a further upward revision to the bank’s growth forecasts. The next updates will be published in the Inflation Report, which is due for publication alongside the February monetary policy decision.
The Governor rejected comments from Chief Economist Haldane, who admitted that the bank had made forecasting errors on economic prospects following the referendum. Carney insisted that the growth outlook had been improved in part by the bank’s actions to relax monetary policy.
There were interesting comments on the banking sector with Carney commenting that there were bigger financial stability risks to European banks from the Brexit process than the UK banking sector. He still warned that the exit process could amplify certain risks.
Carnet also remarked that the UK financial services industry could suffer ‘outsize’ consequences from losing only some of its access to markets in the EU given the size of the industry and self-reinforcing growth over the past few years.
He also remarked that the UK would need a transition period to smooth its exit from the EU.
Market reaction was limited, although another round of dollar strength pushed GBP/USD below 1.2100, which triggered stop-loss selling.