By Jason Douglas

LONDON -- Bank of England Gov. Mark Carney said Monday he expects the British economy to slow this year as accelerating inflation squeezes consumer spending.

In his first speech of 2017, Mr. Carney said growth in the economy is being led by households, who appear vulnerable to quickening price increases fueled by a weak pound. Sterling has fallen around 18% against the dollar since voters chose in June to exit from the European Union.

"At present, households appear to be entirely looking through Brexit-related uncertainties," he said in remarks prepared for delivery at the London School of Economics. But he said rising prices will likely crimp their spending, which, combined with subdued business investment as corporate executives await more detail on the shape of the U.K.'s future relationship with the EU, will probably mean slower-than-average growth in the U.K. over the next few years.

He reiterated the BOE's message from late 2016 that officials are prepared to raise interest rates to contain inflation if price-growth looks set to stay persistently above their 2% annual target, or to cut borrowing costs if the growth outlook weakens markedly.

Mr. Carney was speaking ahead of a much-anticipated speech Tuesday by Prime Minister Theresa May, who is expected to set out more details of her Brexit strategy.

The pound fell Monday to its lowest level against the dollar in three months as investors concluded she will likely signal prioritizing immigration control over unfettered access to European markets for British goods and services. Mrs. May has said she would begin formal divorce talks with the EU before the end of March.

The bulk of Mr. Carney's remarks Monday focused on managing the trade-off central banks face between inflation and growth.

The U.K.'s experience in recent years has shown the value of giving officials some discretion on how to balance that trade-off, he said. Some economists instead advocate requiring central banks to follow strict rules on when to raise or lower interest rates.

Write to Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

January 16, 2017 14:17 ET (19:17 GMT)

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