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[LONDON Bank of England Governor Mark Carney doused speculation that he might soon back higher interest rates, telling bankers on Tuesday that he first wanted to see how the economy coped with Brexit talks in coming months.
Sterling slid by more than half a cent after Carney distanced himself from three other BoE rate-setters who said last week that rates should start to rise for the first time in a decade.
"Now is not yet the time to begin that adjustment," he said in an annual speech at London's Mansion House.
The BoE has found itself in an awkward position. Inflation is rising quickly after falls in the value of sterling since last summer's Brexit vote, while signs of weakness in the economy are increasing, including a slowing of pay growth.
The economy has also been hurt by uncertainty about the Brexit negotiations, which started on Monday, and a murky political outlook further clouded by elections on June 8 in which Prime Minister Theresa May lost her parliamentary majority.
Finance minister Philip Hammond, who has sought to soften Mrs May's at times confrontational tone towards the bloc, told the same Mansion House audience that Britain faced a challenge to secure appropriate transitional trade arrangements with the EU before it left the bloc in 2019.
Mr Carney sounded a similar note of caution, saying that if there was insufficient progress on creating a Brexit transition period, businesses might start to activate their own contingency plans.
It was in any case too soon for the BoE to start raising borrowing costs "given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth," he said.
Mr Carney also took a swipe at one of the leading Brexit campaigners, foreign minister Boris Johnson, who last year dismissed the idea of trade-offs in the EU divorce process by saying his "policy on cake is pro having it and pro eating it".
The BoE governor said: "Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption."
He made it clear he saw the squeeze on spending power continuing.
"Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU."
Last year, pro-Brexit campaigners criticised Mr Carney for emphasising the risks of leaving the EU during the referendum campaign, and for forecasting a sharp economic slowdown after the vote, which did not immediately materialise.
But Britain saw the weakest growth of the world's seven largest advanced economies in early 2017, and some of the other costs of the Brexit vote are now materialising, placing the BoE in a dilemma.
Sterling's post-referendum fall of more than 10 per cent is feeding through into inflation, which has hit its highest in nearly four years at 2.9 per cent and is squeezing consumer spending.
The currency's further fall since the election looks set to push inflation above three per cent, the BoE said last week.
For three policymakers that justified undoing last year's rate cut, but Mr Carney made clear he was in no rush to join them.
"In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to ... the reality of Brexit negotiations."
Economists said Carney appeared further from raising rates than other officials who voted last week to keep rates steady.
"The Governor outlines his personal perspective which appears to imply the decision for him to hold policy steady was not (finely) balanced, in contrast with some of his colleagues," Investec economist Victoria Clarke wrote.
In a sign of concerns that could hold back investment, car maker Honda said its supply chain would seize up if Britain left the EU without a customs deal.
Mr Hammond - who has paid more heed to business worries about Brexit than most of his Conservative colleagues - has said Britain will withdraw from the EU's customs union as part of Brexit but hopes a separate deal will avoid long border delays.
"Our departure from the EU is under way. But ensuring that it happens via a smooth pathway ... one that protects jobs, prosperity, and living standards in Britain will require every ounce of skill and diplomacy," he said on Tuesday.
The Mansion House event was rearranged from last week after a fire in a social housing block in London killed at least 79 people.