BoE chief Carney warns of possible impact of Grexit

Bank of England chief Mark Carney has warned of the likely impact a Greek exit from the euro would have on Britain.

Mr Carney also urged employers on Tuesday not to take advantage of very low inflation to offer weak wage deals to staff, something he said could derail Britain’s economic recovery.

Commenting on the ongoing euro zone crisis, Mr Carney said: its “a serious issues, it’s our largest trading partner, our largest investment destination”.

He added: “If there were to be a disorderly exit of Greece we would expect that this would have ramifications for asset prices more broadly and potentially for confidence, and that those improvements in the institutional structure in the euro area would need to be used to reduce that.”

Mr Carney also told British lawmakers the BoE was aiming to bring inflation back to its 2 per cent target within two years. Consumer prices rose by a mere 0.3 per cent annual rate in January.

“The MPC (Monetary Policy Committee) will conduct policy in order to bring inflation back to target, probably within two years, and that should inform people, particularly as they are forming judgements about appropriate wages,” he said.

The earnings of British workers have started to rise by significantly more than the tumbling inflation rate in recent months, raising expectations that the economic recovery is finally becoming self-sustaining after the financial crisis of 2007-09.

Average weekly earnings rose by 2.1 per cent in the three months to December, outstripping inflation by the biggest amount since April 2008, before the financial crisis.

The BoE predicted earlier this month that earnings would rise by an annual 3.5 per cent in the final quarter of this year, still a bit below their growth rate before the financial crisis.

On Monday, a British government body recommended a 3 per cent rise in the minimum wage, which would take it to £6.70 pounds an hour, the biggest real-terms increase since 2007.

Mr Carney stressed that risks from low inflation in Britain related mainly to the labour market, not to deferred consumption as occurred in Japan, where deflation became entrenched during its so-called lost decade.

Reuters