Carney: Consumer-led UK growth following Brexit vote could fizzle out

Bank of England governor Mark Carney has stood by forecasts of a UK slowdown as he suggested the economy's consumer-led growth could fizzle out.

Mr Carney said that in contrast with the "less sanguine assessment of financial markets" that had sent the pound plunging, households were "entirely looking through Brexit-related uncertainties".

But he said this type of growth tended to be "slower and less durable".

In a speech at the London School of Economics, Mr Carney also defended the 0.25% interest rate cut in the wake of the referendum, claiming that without it 250,000 jobs could have been lost.

The speech comes after recent figures showed that, despite fears of a Brexit shock to the economy, consumer credit growth was at an 11-year high.

However, at the same time, sterling has fallen to new 31-year lows against the US dollar on expectations of a "hard Brexit" divorce deal.

Mr Carney said: "Ultimately, the tension between consumer strength on the one hand and the more pessimistic expectations of markets on the other will be resolved."

He said the increasingly consumption-led nature of UK growth provided a "corroborating indicator" of the Bank's predictions in November that growth was expected to slow.

Mr Carney said evidence from previous decades "suggests episodes of consumption-led growth tends to be slower and less durable".

That was because the growth in consumer spending would eventually outpace earnings growth, causing a build-up of debt.

Meanwhile, the demand driving the economy would be more sensitive to changes in employment and wages.

The Bank's outlook in November had predicted that the slump in the pound – which makes imports more expensive – would feed through to inflation, slowing consumer spending growth.

This would combine with uncertainty over investment to weigh on the wider economy.

However, the November forecasts were still an upgrade on the even gloomier picture the Bank had painted in August.

In his latest speech, Mr Carney noted that more recently "there have been signs of continued solid consumer momentum domestically and a stronger growth outlook globally".

He also reiterated the Bank’s position that it could allow inflation to go a little higher by leaving interest rates low, in order to avoid a hike that could add to unemployment.

But there were also limits to how much higher inflation could be tolerated.