In a speech in London, Mark Carney said the Bank’s forecasts, which imply interest rates would go up in the coming years, were predicated on Brexit being a smooth process, with a negotiated deal between the UK government and EU.
However, he added that if the transition wasn’t smooth, the Bank’s monetary policy committee (MPC) could be expected to act similarly to how it did after the EU referendum result – when it cut interest rates from 0.5% to 0.25%, and electronically created an extra £60bn to buy assets through its quantitative easing programme.
Speaking to a dinner of the Society of Professional Economists, Mr Carney said: “A more disorderly transition, or a materially different end state from our assumption, would have implications for monetary policy.
“To understand the MPC’s potential response, businesses, households and market participants can draw on the committee’s track record of managing the trade-off that emerged after the referendum, since exactly the same framework would apply.
“As then, the policy response would reflect the balance of the effects of a sharper Brexit on demand, supply and the exchange rate.
“Given the exceptional circumstances, the committee would have to decide whether to extend the period over which inflation is returned to target in order to provide support to jobs and activity.
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“Although the exact policy response cannot be predicted in advance, observers know from our track record that, in exceptional circumstances, we are both willing to tolerate some deviation of inflation from target for a limited period of time and that there are limits to that tolerance.”
The comments come a few days after the governor said that UK households were around £900 worse off as a result of the EU referendum.