Five Things We Learned From BOE Tenreyro's Maiden Speech, Q/A

By David Robinson

     LONDON (MNI) - Monetary Policy Committee newcomer Silvana Tenreyro gave her

inaugural speech Monday at Queen Mary's University.

     Here are five things we learned:

     1) Tenreyro's central expectation for the path of Bank Rate matches the

market path used in the Bank's November Inflation Report, which assumed a couple

more hikes over three years, taking Bank Rate to around 1% from its current

0.5%. She is not expecting to be a hawkish dissenter.

     2) Where Tenreyro parts company from the central MPC view is that she is

relatively bullish on productivity growth. She believes that the risks to UK

productivity growth are skewed to the upside, in part because the nation's

productivity has been appalling by international standards. 

     In the three decades before the global financial crisis UK productivity

growth averaged 2.3% per year, and in the seven years since it has averaged a

paltry 0.4%. Even if the theories about powerful forces weighing on global

productivity, including demographics and returns to technological innovation,

were true the UK could still achieve substantial gains by simply making up lost

ground on its peers.

     "Even if productivity in other advanced economies were to stall completely,

UK productivity could still grow rapidly for some time, if it were possible to

catch-up to other countries' levels," she said.

     3) Tenreyro said in the Q and A that what was key for policy was how wage

growth performed relative to productivity, so even sharp wage growth would not

put upward pressure on Bank Rate if it was accompanied by strong productivity

growth.

     4) One area where her research on productivity took previous BOE analysis

forward was in her focus on the sector-by-sector story. While the initial

productivity fall was broad-based manufacturing and the UK's bloated

financial-sector, with the latter hit by deleveraging, have played a large part

in retarding any recovery in productivity.

     She said that deleveraging was running its course and if financial sector

productivity simply moved in line with aggregate GDP, that would entail that it

would make a substantial upward contribution.

     5) Tenreyro like her colleagues could not make a speech without referencing

Brexit. She said that it appears to have weighed on UK investment, which matters

for productivity, but expressed optimism that this effect should ease as Brexit

uncertainty reduces.

     "Investment has recovered in advanced economies, including the US, but not

in the UK. One of the reasons why the UK might be lagging behind is the added

uncertainty over the future trading relationship with the European Union," she

said.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

[TOPICS: MMUFE$,M$U$$$,MX$$$$]