Bank of England Governor Mark Carney said a global trade war and a no-deal Brexit were growing possibilities but not certainties, and the central bank was focusing on the medium-term inflation outlook to guide its stance on interest rates.
Carney also said in a speech on Tuesday that he believed underlying growth in Britain was running below its potential and was heavily reliant on the resilience of household spending. The BoE has stuck to its message that interest rates will need to rise in a gradual and limited way if Britain manages to exit the European Union with a transition deal to absorb the economic shock.
Carney acknowledged the differences between that position and the more pessimistic view of investors who do not expect a rate hike in the near term, some of whom are pricing in the possibility of a rate cut by the BoE.
Governor Carney said the central bank was working on the assumption that both candidates to become Britain’s next prime minister would achieve their stated aim of reaching a deal with the EU. However, both Boris Johnson and Jeremy Hunt have said they are prepared to leave without one if necessary, pushing the value of sterling down in recent weeks.
French President Emmanuel Macron sought to break a deadlock over the EU’s top jobs on Tuesday by proposing France’s Christine Lagarde, now head of the International Monetary Fund (IMF), to lead the European Central Bank (ECB), diplomatic sources said.
In his proposal, made to tired EU leaders on a third day of arm-wrestling over who will hold the posts for the next five years, Macron also proposed German Defence Minister Ursula von der Leyen to head the European Commission, the EU executive.
Donald Tusk, chairman of the summit, said a deal was “getting closer and closer”, but there was immediate resistance from the European Parliament, which must approve the EU national leaders’ nomination for the post of Commission president.
Macron’s proposal would hand the Commission to the center-right European People’s Party (EPP), which includes German Chancellor Angela Merkel’s ruling conservatives to whom von der Leyen belongs.
A diplomatic source said Merkel, the EU’s most powerful leader, was “very positive” about the proposal of Lagarde, a former center-right French finance minister. She is also likely to welcome the proposal of von der Leyen, a close ally.
15.00 – USD: ISM Non-Manufacturing PMI; forecast at 56.1 against previous of 56.9