WASHINGTON, Sept. 18 -- Bank of England (BOE) Governor Mark Carney said on Monday that de-integration effects of Brexit can push up the inflationary pressure in UK, as the country is adjusting its trade and investment relationships with Europe Union.
"The de-integration effects of Brexit can be expected to steepen the Phillips Curve and to be inflationary," said Carney in the 2017 Michel Camdessus Central Banking Lecture held by the International Monetary Fund (IMF) on Monday.
In his speech, Carney noted that the globalization is bring disinflationary pressure to the global economy, as the global value chains, products and labor markets are increasingly integrated.
As the UK is redefining its relationship with its largest trade and investment partner EU, the UK is expected to see disruptions to in-bound value chains from Europe and reduced contestability of UK labor and product markets, said Carney.
He pointed out the Brexit is going to bring inflationary pressure to the UK economy, given Uk's reduced trade integration with EU and reduction in net migration after the Brexit.
Given the UK's rising inflationary pressure and the continued erosion of slack in the economy, BOE is likely to withdraw monetary stimulus over the coming months in order to return inflation sustainably to target, said Carney. UK inflation rate hit 2.9 percent in August, well above its target of 2 percent.
"The case for a modest monetary tightening is reinforced by the possibility that global r* (real interest rate) may be rising, meaning that monetary policy has to move in order to stand still," Carney added.
Central banks in major economies have begun or are considering monetary tightening. The Federal Reserve has raised interest rates four times since December 2017, and the European Central Bank is moving toward reducing monetary stimulus for the euro zone economy.
In his speech, Carney reiterated that the BOE would proceed the rate hikes at a gradual pace and to a limited extent.
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