Five Things We Learnt From BOE Tenreyro Speech, Q and A

By David Robinson

     LONDON (MNI) - Bank of England Monetary Policy Committee (MPC) member

Silvana Tenreyro gave a speech and held a question and answer session on Monday

at the University of Surrey, Guildford. Here are five things we learnt:

     -Tenreyro defended a wait-and-see approach to hiking Bank Rate, but if the

data do continue to come in firmer following the soft first quarter she looks

very unlikely to oppose tightening.

     "I think that much of the downside Q1 GDP news is likely to be erratic, but

it does increase the possibility of some underlying weakness in demand," she

said in her speech.

     -When London School of Economics professor Tenreyro was appointed to the

MPC on July 5 2017 the initial take of some analysts was that she was a dove.

This view was based on slim evidence: she had previously said that Brexit would

have a negative impact on the UK economy and that she believed that the MPC

should be able to take Bank Rate into negative territory if required. 

     In fact, she appears to be dead centre on the committee. She signed up to

the majority view in November, backing the initial 25 basis point rate hike and

she is now arguing that any prolonged delay in the next hike raises the risks of

an inflation overshoot.

     -Tenreyro is sceptical about the benefits of MPC members publishing their

own rate forecasts. In response to a question from Market News she said that so

far Fed policy had been "uni-directional" - the debate there has all been about

when and precisely how much to tighten. She wants to see how the dot plot

performs if and when the data suggest policy may have to go in the opposite

direction to that originally shown in the plot.

     She said that there were good arguments on either side of the debate but "I

am not sure having a dot plot would be a good idea." 

     With only MPC member Gertjan Vlieghe publicly advocating that the committee

should publish its own rate forecasts the chance of it doing so under Mark

Carney's governorship look vanishingly small.

     -Tenreyro was guarded about the how things are stacking up ahead of the

June MPC meeting, with the decision set to be announced June 21. She said that

there had been "a slight slowdown in momentum" but that MPC members would be

learning more in coming weeks and "it is too soon to say."

     All eyes are on the August MPC meeting, when the committee will have

completed the quarterly inflation forecast round, rather than this month's one,

which is a stop-gap. Tenreyro's non-committal remarks underscore that an August

hike is very much data dependent.

     -MPC members are likely to steer clear of saying much of note on the

political risks arising from Italy that have been shaking up the euro area. The

BOE's central projections exclude such hard to quantify risks and they only

impact the forecasts directly through their impacts on asset prices, credit

spreads and such things as business and consumer confidence.

     While data overall "remain consistent with the robust global growth

incorporated in the MPC's May IR forecast. We will need to remain watchful on

this front, especially given recent increases in political uncertainty in Europe

(and the associated market reaction), which is another factor that does not

directly enter our models," Tenreyro said.

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

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