MNI: BOE Carney: Data Suggest Domestic Cost Pressures Building

--UK Economy Evolving Broadly In Line With May Inflation Report: Carney

By David Robinson

     LONDON (MNI) - Bank of England Governor Mark Carney said Thursday that

recent data made him more confident that the weakness in first quarter growth

was erratic and weather related and that they suggested domestic cost pressures

were rising. 

     Speaking at the Northern Powerhouse Business Summit in Newcastle, Carney

said that the economy appeared to be evolving broadly in line with the

projections in the Bank's May Inflation Report. Those projections supported

gentle tightening: showing that if Bank Rate rose by around 0.25 basis points a

year inflation would remain a little above its 2.0% target until the first

quarter of 2021.

     UK growth slowed in the first estimate of Q1 GDP to 0.1% on the quarter but

this has recently been revised up to 0.2% and activity indicators have pointed

to an acceleration in the second quarter.

     "Recent domestic data suggest the economy is evolving largely in line with

the May Inflation Report projections, which see demand growing at rates slightly

above those of supply and domestic cost pressures building," Carney said.

     --Q1 WEATHER RELATED

     The latest data supported his view that "the softness of UK activity in the

first quarter was largely due to the weather, not the economic climate," he

said.

     Household spending and sentiment indicators had rebounded, the UK labour

market remained strong and there was plenty of evidence that economic slack had

been largely used up.

     Carney said that pay and domestic cost growth had firmed pretty much as

expected and that headline inflation would rise in the near term because of

higher energy prices.

     He acknowledged that there had been some softening in the global growth

outlook but said that it remained strong.

     He only referred in passing to the Brexit process, noting that the central

bank's projections were based on a smooth procession to an average of the

plausible end states.

     Current market expectations show a rate hike is more likely than not in

August but still show little more than one 25 basis point hike a year is

priced-in for the next three years.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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