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BoE: Stance on rates unchanged by China woes

Bank of England Governor Mark Carney
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Bank of England Governor Mark Carney

Bank of England Governor Mark Carney said on Saturday that a slowdown in China's economy could push down further on inflation but it did not change, for now, the central bank's position on when and how it might increase interest rates.

Carney, speaking at an annual U.S. central banking conference in Jackson Hole, Wyoming, reiterated his view that the recovery in Britain's economy "will likely put the decision as to when to start the process of gradual monetary policy normalization into sharper relief around the turn of this year."

That comment echoed one he made in mid-July, before global financial markets took a hit in recent days over concerns about the health of China's economy.

The BoE cut rates to 0.5 percent, a record low, at the height of the financial crisis in 2009. Although inflation in Britain is almost zero, the Bank is likely to start raising rates in the first quarter of next year as wage growth picks up, economists predict.

Carney said on Saturday a Chinese slowdown could add to pressure pushing down on prices in Britain and risk aversion in global markets could make financial conditions in the country tighter, which would also weigh on inflation.

"These are possibilities, not certainties. Their evolution needs to be monitored, not taken for granted," he said, before adding the direct exposure of Britain's economy to China was relatively modest.

He also said the BoE could "look through" the temporary disinflationary impact on inflation from lower demand in China for commodities but would watch for any longer-lasting impact on Britain from a slowing of the world's No.2 economy.

"Developments in China are unlikely to change the process of rate increases from limited and gradual to infinitesimal and inert," Carney said.

The BoE's main guidance on interest rates has been that when the time comes to raise them, they will go up gradually and to a level lower than before the financial crisis.

Carney stressed that his comment on the timing of a decision by the BoE on rates did not prejudge any particular decision.

"But it does indicate that recent events do not yet, to my mind, merit changing the MPC's (Monetary Policy Committee's) strategy for returning inflation to target," he said.

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