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--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
[TOPICS: M$B$$$,M$E$$$,MT$$$$,M$$BE$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com