The Bank of England (BoE) Governor Mark Carney said in a letter to Andrew Tyrie, the Treasury Select Committee (TSC) chairman, on Wednesday that Britain’s exit from the European Union (EU) could lead to a higher inflation and a lower economic growth.
“There are plausible scenarios where the combined effects of the exchange rate move and its drivers on aggregate demand, aggregate supply and exchange rate pass through lead to a lower path for growth and a higher path for inflation,” he said.
“Firms can ultimately be expected to pass through higher costs to consumers, resulting in higher prices,” Carney added.
The BoE governor noted that the depreciation of the pound could lead to higher consumer price inflation.
“A persistent 10% depreciation (or appreciation) of the sterling effective exchange rate (ERI) increases (or decreases) annual consumer price inflation by around 0.75% over the baseline path after two to three years, and the price level by around 2.75% over four years.
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