MNI 5 Things: Future UK Policy Path Outlook Driven: BOE Carney

--Five Things Of Note From BOE Governor Mark Carney Speech At SPE

     LONDON (MNI) - Bank of England Governor Mark Carney spoke Thursday to the

Society of Professional Economists. Here are 5 things of note from the speech.

     -- Carney opened by saying the future path for policy will "depend on the

outlook for the economy which in turn will depend very much on how the Brexit

negotiations evolve." He stressed that monetary policy is always contingent on

the economic outlook, which is broader than it being data dependent. In order to

achieve the inflation target, he said, monetary policy needs to adjust not only

to news about current conditions but also to any changes in likely future

circumstances. "While it may be the MPC that sets interest rates, it is

ultimately the economy that determines them," he said.

     --Underlining that how the Brexit negotiations evolve will be paramount in

how monetary policy evolves. But he was clear that the central bank, at least

when it comes to monetary policy, is ready for the UK's departure. "My message

this evening is straightforward. From a monetary policy perspective, the Bank of

England is ready for Brexit whatever form it takes."

     --Carney again stressed that the BOE's forward guidance is aimed "first and

foremost" to UK households and businesses. He stressed that the views of

economists and financial market participants are central to the transmission

mechanism from Bank Rate, set by the MPC, to the various interest rates facing

households and businesses and to asset prices more generally. He added that

guidance can reinforce the transmission mechanism by reducing unnecessary

uncertainty - not eliminating all uncertainty, but stressed that is not the same

as guaranteeing the future stance of monetary policy. Indeed, "market

participants can be expected to pay the closest attention to any explicit

conditionalities around guidance and should usually be the first to update their

expectations of policy as the outlook for the economy changes," he said.

     --Confirming current guidance by the Monetary Policy Committee, Carney

said, as the MPC has stressed, "were the economy to develop broadly in line with

the May Inflation Report projections, an ongoing tightening of monetary policy

over the forecast period would be appropriate to return inflation sustainably to

its target at a conventional horizon."

     --The Governor confirmed that the MPC in the process of reviewing the

possible range for the equilibrium real interest rate in the medium term. This

analysis, he said, "reflects the importance of global equilibrium rates for the

UK, and the possibilities that the global equilibrium real rate may rise as the

global recovery proceeds and that domestic cyclical factors such as the pace of

public and private balance sheet repair may shift. The Committee intends to

provide information about its updated view in its August Inflation Report."

     The full text of Governor Mark Carney's speech is available here:

https://goo.gl/GPcKKY

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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