Carney and Yellen ease off inflation target to boost economies

Bank of England governor Mark Carney signalled that shoring up the UK economy trumps concerns over inflation in the immediate future, pushing Brexit-sensitive Dublin stocks higher and the Iseq to its biggest gain in six weeks.

He made the comments at an event on Friday amid a post-Brexit slump in sterling against the euro and dollar, which accelerated after British prime minster Teresa May said on October 2nd that she plans to press the start button on talks to quit the EU by the end of March.

Sterling’s move has pushed up import costs, with many economists now expecting inflation to rise above 2 per cent in 2017.

Mr Carney and most Bank of England policymakers have said they would support another rate cut this year. While many financial market observers have feared that rapid inflation could prompt them to be more cautious, Mr Carney said that the outlook for unemployment means that measures so far, including a rate cut in August and the restarting of quantitative easing, were justified.

“So we’re willing to tolerate a bit of overshoot in inflation over the course of the next few years in order to avoid [an unemployment spike], to cushion the blow,” he said.

UK-focused companies in Ireland benefitted from the comments, with ferry operator Irish Continental Group's surging 4.5 per cent, while Ryanair and Paddy Power Befair also advanced. The overall Iseq index rose 1.6 per cent.

Political side

Asked about recent comments from Ms May that loose monetary policy has had bad side effects as “people with assets have got richer, people without them have suffered”, Mr Carney said he and his colleagues act independently.

“We’re not going to take instruction on our policies from the political side,” he said.

Meanwhile, the head of the Federal Reserve Janet Yellen also indicated in a speech on Friday that the US rates-setting body would be inclined to let inflation run hot for a while in order to fix some of the damage caused by the financial crisis.

"Increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending," Ms Yellen said. "A tight labour market might draw in potential workers who would otherwise sit on the sidelines." – Additional reporting, Reuters, Bloomberg