Bank of England governor Mark Carney says China turmoil won't affect interest rate decision

 
Jessica Morris
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Rate-setters must balance the strength of the UK economy with low inflation (Source: Getty)

Bank of England governor Mark Carney has said that the slowdown in China's economy won't affect the path of interest rates for now.

"Developments in China are unlikely to change the process of rate increases," Carney told an audience at an annual US central banking conference in Jackson Hole, Wyoming.

His comments come after "Black Monday" where renewed fears over the health of China’s economy ripped through stock markets around the world. US, Europe, Japan and beyond crashed by $1.3 trillion according to the S&P Global 1200 index, while shares in China fell by nearly $300bn.

Yet the governor reiterated that the decision about when to raise interest rates from a historic low 0.5 per cent would come into sharper relief around the turn of this year.

"The prospect of sustained momentum in the UK economy and the gradual firming of underling inflationary pressures will likely put the decision as to when to start the process of gradual monetary policy normalisation into sharper relief around the turn of this year," he said.

Carney stressed the Bank's monetary policy committee (MPC) would continue to monitor developments in China, because it could increase deflationary pressures. But the rate-setting committee's current strategy, balancing the strength of the UK economy with low inflation and weak global demand, remained unchanged.

"To be clear, that opinion doesn’t prejudge any particular decision. But it does indicate that recent events do not yet, to my mind, merit changing the MPC's strategy."

He said that that the MPC must continue to weigh the "domestic strength on the one hand and disinflationary forces from the combination of the exchange rate and global weakness on the other."

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