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By David Robinson
LONDON (MNI) - Markets may be under-pricing the likelihood of Bank of
England rate hikes in the event of a smooth Brexit, Deputy Governor Ben
The UK economy is showing signs of generating further
domestically-generated inflation, with unemployment rates around a 40-year low
and Broadbent anticipated further increases in average earnings.
Despite news reports suggesting fluctuating chances of a Brexit deal, an
agreement allowing a smooth transition to a longer-term trading relationship "is
still the most likely outcome," Broadbent told CNBC in an interview.
"Every day there are headlines, positive, negative, which will send the
currency in particular in one way or another," Broadbent said.
But a smooth Brexit transition "still seems to me to be the most likely
The monetary policy committee is basing its economic projections on an
average of Brexit end states without attaching weights to the relative
likelihood of each and excluding no deal. But at present sterling and sterling
asset volatility is high due to uncertainty over the outcome.
"The most crucial assumption, certainly for our monetary policy horizon, is
will there be a transition period agreed as part of that withdrawal agreement,"
If there is a withdrawal agreement agreed, under which businesses can
operate under existing EU rules, Broadbent anticipated a rebound in currently
"Brexit uncertainty, concerns about the state of negotiations and
uncertainty about the outcome of them have been pulling down materially on
investment," he said.
If an agreement with a transition period is reached "one can assume that a
fair amount of that uncertainty will fall away and that ... investment projects
that have been put on hold will come back," he said.
In other remarks Broadbent said he stood by the Bank's forecast for growth
to slow to just 0.3% in the fourth quarter and that earnings will rise in line
with MPC projections.
--MNI London Bureau; tel: +44 203-586-2223; email: email@example.com