Britain's central bank governor defends post-Brexit upward revision in GDP forecast

Britain's central bank governor Mark Carney on Thursday defended an upward revision in economic growth in the latest quarterly inflation report.

Bank of England (BOE) governor Carney told journalists at a press briefing for the autumn quarterly inflation report that the economy has performed better since the last report in August and that the impact of Brexit on economic behavior is now clearer.

Growth was revised upwards for 2016 from 2 percent to 2.2 percent of GDP, and for 2017 from 0.8 percent to 1.4 percent. The Consumer Price Inflation (CPI) forecast for the final quarter of 2017 was revised up from 2 percent to 2.7 percent.

"Since August, demand growth has been materially better than expected, and the Monetary Policy Committee (MPC) now projects the level of GDP to be 0.7 percentage points higher by the end of this year," Carney said.

He said the MPC had expected consumption to continue to grow solidly throughout the remainder of 2016. But consumption has been even stronger, with households appearing to entirely look through Brexit-related uncertainties.

"For households, the signs of an economic slowdown are notable by their absence," said Carney.

Other aspects of the UK economy remained strong, with job security and wages continuing to grow at the same modest paces as at the beginning of the year. Credit is available and competitive. Confidence is solid. This positive consumer sentiment has supported the housing market, which has also been more resilient than expected, as housing activity behaves more like consumption than investment.

"Both consumption and housing have benefitted from a smaller drag from uncertainty and very supportive financial conditions," he added.

Carney said that these positives were "neither solely due, nor totally unrelated" to the actions the MPC took in August, when it reduced interest rates by 25 basis points to 0.25 percent and extended its asset purchase program in order to provide liquidity in the wake of the Brexit vote.

Carney said that it was the fall in the sterling -- which has declined 6.1 percent against the U.S. dollar since the beginning of October on top of a large fall immediately after the Brexit vote -- that would have the most significant implications on inflation over the next three years.

"The limited post-referendum data we have so far suggest households could behave more adaptively, reacting to changes in jobs and incomes they actually experience, rather than those in prospect. Firms are in various stages of preparation to take action. And financial markets will likely continue to anticipate and adjust rapidly as their perceptions of the UK' s longer run arrangements with Europe evolve," said Carney.

Carney said that the tension between consumer strength, currently driving economic growth and the more pessimistic expectations of markets will be resolved, and he believed this would be in the form of inflation caused by the weak pound which would weigh on household spending.

This would amplify the effect of increased uncertainty in investment which would lower productivity growth. GDP growth would be stronger in the short term and a little weaker in the longer term, he said. Endi