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-Treasury Committee Request Could Prompt Monetary Policy Clues
By David Robinson
     LONDON (MNI) - The Bank of England faces an official call to publish
economic forecasts for different Brexit scenarios, something which might give
clues to its possible range of responses should the UK leave the European Union
with no deal or under a withdrawal agreement.
     Treasury Committee Chair Nicky Morgan published Thursday a letter to Bank
Governor Mark Carney requesting the analysis. Up until now the BOE has based its
forecasts on an average of possible Brexit outcomes, reasoning that it has no
business assigning probabilities to the results of political negotiations.
     If the BOE provides the Treasury Committee, a cross party body, with the
scenario breakdown requested this could potentially clash with projections
included in its upcoming November Inflation Report, which are used as a basis
for its formulation of monetary policy.
     One option for the Bank's Monetary Policy Committee would be to include the
Brexit scenario analysis alongside its central forecasts based on an average
outcome in the report, due out on Nov. 1.
     --BREXIT RESPONSE A TWO-WAY BET
     The Bank of England cut its benchmark interest rate and launched additional
quantitative easing after UK voters opted for Brexit in a June 2016 referendum,
but policy makers have cautioned that investors should not bet on a similar
response once the UK actually leaves the EU. Supply side disruption might push
up inflation, for instance, outweighing the downwards effects on prices of any
fall in economic activity.
     Morgan called for the studies before the UK parliament debates the
withdrawal agreement.
     There is no precise timetable for parliamentary votes but EU leaders are
set to discuss progress in the talks on October 17 with a special November 17-18
Council meeting then anticipated if enough progress has been made.
     Parliamentary voting would then begin late November. If the Bank agrees to
the Treasury Committee request, but is unable to assemble the analysis on time
for the inflation report it would have to publish it at most a few weeks later.
     Morgan also asked Carney to set out the implications of the UK leaving the
EU "with no agreement at the end of a transition period."
     Any withdrawal agreement is expected to include a transition period leaving
the UK operating under EU law until December 2020.
     Morgan, a member of the governing Conservative Party, was strongly in
favour of the UK staying in the EU but has subsequently called for the country
to follow the Norway model - staying within the European Economic Area.
     From her perspective, BOE analysis which highlights the potential costs of
a cliff-edge deal would be politically welcome.
     The Treasury Committee also announced that it had appointed Stephen
Nickell, a former MPC member, to advise it on Brexit - highlighting the Bank's
dominance over such public sector analysis, with former Deputy Governor Charles
Bean spearheading the Office for Budget Responsibility's Brexit work.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
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