Millions of people on low incomes face the threat of a living standards squeeze if inflation rises after the slump in sterling’s value, the Bank of England Governor warned today.
Mark Carney also signalled that inflation could be allowed to increase above its two per cent target to avert job losses following the Brexit vote.
As the pound fell further this morning, Mr Carney stressed that interest rates had been cut to just 0.25 per cent to prop up the economy.
Inflation was 0.6 per cent in August but is predicted to rise. “We are willing to tolerate a bit of an overshoot [on the inflation target] to avoid unnecessary unemployment,” the Governor told a meeting in the Midlands.
“It is going to get more difficult [for those on lowest incomes] as we move from no inflation to some inflation.”
Sterling fell by about 0.5 per cent against the dollar this morning but had recovered much of the losses before midday to stand at just over $1.22.
Philip Hammond faced growing pressure to boost infrastructure spending after a shock slump in the construction industry. Construction output dropped 1.5 per cent in August, with a fall in infrastructure activity of 5.1 per cent.
Economists said it pointed towards the building sector heading into recession. The Chancellor is already ex-pected to seek to boost the economy in his Autumn Statement, and George Osborne’s borrowing rules have been torn up to allow greater expenditure to stop economic growth grinding to a halt after the June 23 vote for Brexit.
Today Theresa May was meeting EU ambassadors in London. No 10 called for a “constructive” approach for Brexit talks after European Council president Donald Tusk argued that the country faced “hard Brexit” or “no Brexit”.
Downing Street also rebuffed Nicola Sturgeon’s stance that it would be “inconceivable” for the Government to block her consultation on a second Scottish independence referendum.
Meanwhile, it emerged that six Leave campaigners are on the Cabinet committee overseeing Brexit: David Davis, Boris Johnson, Liam Fox, Priti Patel, Chris Grayling and Andrea Leadsom.
