BOE Broadbent: Yield Curve Too Flat If Brexit Is Smooth: CNBC

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

Broadbent said.

     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

outcome."

     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,"

Broadbent said.

     If there is a withdrawal agreement agreed, under which businesses can

operate under existing EU rules, Broadbent anticipated a rebound in currently

depressed investment.

     "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: david.robinson@marketnews.com

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