MNI ANALYSIS: BOE Could Be Forced To Provide Brexit Scenarios

-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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