Bank of England's Carney says hard to predict effect of post-Brexit slide in sterling

Reuters

Published Apr 27, 2016 06:59AM ET

Bank of England's Carney says hard to predict effect of post-Brexit slide in sterling

LONDON (Reuters) - Bank of England Governor Mark Carney said it was not easy to predict the effect on inflation if sterling fell sharply after Britain voted to leave the European Union, in a reply to a lawmaker's question published on Wednesday.

Labour Party lawmaker Rachel Reeves had asked Carney last month what the impact would be on inflation if sterling fell by a fifth in the wake of a British vote to leave the European Union in a referendum on June 23

Carney, in a written response, said the central bank's mechanical rules of thumb assumed that a persistent 10 percent fall in sterling would add 0.75 percentage points to consumer price inflation after two to three years, and that a 20 percent fall would have double the effect.

But he added that it would be wrong to assume this would apply in the case of Brexit.

"It comes with strong caveats and assumes, unrealistically in this case, that the exchange rate moves for purely 'exogenous' or un-modelled reasons. It also assumes that there are no other shocks and that expectations of future inflation remain anchored to the MPC's inflation target," Carney said.