BOE Carney: Market Underestimates Tightening; No Time Guidance>

-BOE Carney: Due To UK Supply Shock Modest Growth May Impact Policy 

     LONDON (MNI) - Bank of England Governor Mark Carney said that the 

market was likely underestimating the total amount of tightening 

required over the next three years, but he refused to be drawn on when 

the first rate hike was likely to come. 

     The BOE August Inflation Report forecasts were conditioned on 

market assumptions for two 25 basis point rate hikes over three years, 

with the first one coming in Q3 2018. Carney said that more tightening 

than this was likely, but refused to give a steer on whether the first 

hike would probably be earlier than the market assumed. 

     Speaking at the press conference Carney said that tightening was 

likely to be less rapid and less substantial than in the "traditional" 

rate cycles that pre-dated the global financial crisis, but greater than 

the market was factoring in. 

     "We've conditioned the forecast on the market curve ... and that 

curve had more than one interest rate hike over the course of three 

years. We think that will be a little insufficient relative to what 

would be required in order to fulfill our mandate," Carney said. 

     Based on the market curve, inflation was shown holding above the 

MPC's 2.0% target throughout the entire three year forecast period. 

     Asked if, when the first hike in Bank Rate came, it should be seen 

as a one-off or the start of a "traditional hiking cycle" Carney said 

that traditional cycles had long gone. 

     "Tradition is gone for some time ...(Tightening would likely be) 

More than the market, less than traditional," Carney said. 

     He said it would be inappropriate for him, speaking on behalf of 

the MPC, to comment on when the first hike was likely to come. 

     The MPC is divided on the issue, with two members, Michael Saunders 

and Ian McCafferty, voting for a hike at the August meeting. 

     In the press conference Carney also highlighted the impact that 

Brexit uncertainty has had on business investment. With the UK 

experiencing a supply shock, even modest growth could have implications 

for the stance of monetary policy. 

     "The supply capacity of the economy is likely to expand at only 

modest rates throughout the forecast period. That means only a modest 

uptick in demand growth from current sluggish rates will be sufficient 

to reduce and eventually eliminate slack," Carney said in his opening 

remarks. 

     --London newsroom: e-mail: david.robinson@marketnews.com 

[TOPICS: M$$BE$]