MNI 5 THINGS: BOE MPC Has 'Wiggle Room' On 2-Yr Infla Horizon

--Five Things We Learnt From BOE MPC Testimony

By David Robinson

     LONDON (MNI) - Bank of England Governor Mark Carney and his Monetary Policy

Committee colleagues Deputy Governor Ben Broadbent, Chief Economist Andrew

Haldane and Silvana Tenreyro gave evidence on Wednesday, February 21 to the

Treasury Select Committee.

     Here are five things we learnt:

     1) The MPC has not shifted suddenly from aiming to get inflation back to

its 2.0% target in three years to getting it there in precisely two years,

despite a lot of commentary to the contrary. Carney said that the MPC was

bringing in its target date to get inflation to 2.0% from three years but "not

jumping" to two years. The February Inflation Report showed inflation holding

above the 2% target throughout the three year forecast horizon. Commentators

talked about the MPC shifting to a two year target, but policymakers prefer to

leave themselves flexibility.  The BOE governor's remarks underscore that the

committee has indeed left itself wriggle room.

     2) The MPC does not intend to offer any further guidance that will be as

precise as its September warning that a rate hike was likely "over the coming

months." Carney described that September guidance as "almost a pre-commitment"

and it trumpeted the November hike but he said that was not a situation that the

MPC wanted to be in again. The committee only provided such a direct warning

because financial markets were stubbornly refusing to believe that it would

sanction a hike with Brexit negotiations ongoing, Carney confirmed.

     3) Carney said that Brexit negotiations are entering a crucial phase and

that monetary policy is "nimble". Having stressed that the MPC is ready to

tighten despite ongoing Brexit negotiations, Carney's remarks about its ability

to be nimble indicate further tightening can be postponed or even reversed if

sudden developments in Brexit negotiations warrant.

     4) Carney said that since the November hike markets "have been trading on

data." This is precisely what the MPC wanted. It shows that markets no longer

have a strong bias that the committee will not tighten due to Brexit

uncertainty.

     5) Haldane said that it was very likely that average weekly earnings would

rise in January to "something with a three in front of it" due to base effects,

as earnings growth in new year 2017 was very weak. This would mark a return to

positive earnings growth, after a long run of 2 point something AWE growth while

inflation moved above 3%, but Haldane warned of pretty flat earnings growth

after the new year rise.

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

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