Carney Q&A Con't.: Q: Forecasts have large......>

BOE: Carney Q&A Con't.: Q: Forecasts have large degree of excess demand in next

few years, yet inflation remains low. Does this mean markets should be relaxed

about the forecast and not worry about excess demand?

- A: No. Notes steadily building inflationary pressures, adding that Bank

stretched remit post-referendum, looking through near-term inflation. Given lags

between economic slack and inflation, excess demand has effect on inflation

beyond the end of the forecast period. Bank base forecast on market pricing for

oil, imparting negative effect on energy costs - forecasts far more complex than

simply excess demand (particularly over medium-, long-term).

- Q: Where would customs arrangement sit RE your base growth forecasts? Would

you welcome customs arrangement as would give you 'rulemaker' status from

financial stability perspective?

- A: Term 'customs union' has many different permutations. Bank uses average of

WTO and EEA or 'Norway style' deal. Bank's assumptions sit somewhere between FTA

and customs arrangement. If government provides clarity on agreement, the MPC

will have to roll up its sleeves and "recast the forecast".