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Pound dips as Carney signals stimulus measures to spur UK growth

Sterling dropped Jan. 9 as the Bank of England's outgoing Governor Mark Carney indicated that the central bank could pursue more stimulus measures to spur growth in the British economy.

"There is a debate at the [monetary policy committee] over the relative merits of near-term stimulus to reinforce the expected recovery in U.K. growth and inflation," Carney said in a speech. Persistent weakness in the economy could trigger a "prompt response" from the bank, he added.

The pound dipped more than 0.5% against the dollar as Carney spoke; sterling traded at $1.303 as of 7 a.m. ET. The euro rose 0.5% against sterling to 85.22 pence around the same time.

That Carney mentioned the stimulus debate is not news, given that two policymakers voted for a cut during the latest policy-setting meeting in December 2019, said Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics. "But the governor knows what kind of reaction he will get by mentioning the stimulus debate; clearly he at least still is wavering, despite the election result."

The governor said the U.K.'s economic growth is expected to pick up from its current below-potential rates, helped by reduced Brexit uncertainties, easing fiscal policy and a modest recovery in global growth.

"This rebound is not, of course, assured," Carney added, noting a sluggish economy and inflation that remains below the central bank's target.

Carney also said there is "sufficient headroom to at least double" the central bank's £60 billion asset purchase program.

"A reasonable judgement is that the combined conventional and unconventional policy space is in the neighborhood of the 250 basis points cut to [the] bank rate seen in pre-crisis easing cycles," Carney said.

A day before, Carney said global central banks are running out of policy measures to ward off a possible recession in the future as the global economy inches toward a "liquidity trap."