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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
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
"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
--MNI London Bureau; tel: +44 203-586-2223; email: firstname.lastname@example.org
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