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-Brexit Risks Centre Stage But MPC's Sep Meeting Will Steer Around Them  
By David Robinson
     LONDON (MNI) - The Bank of England's Monetary Policy Committee is set to
leave policy on hold at its September meeting, as it waits to see how earnings
growth and inflation respond to its August rate hike.
     While the range of medium-term economic scenarios varies wildly according
to whether the government clinches a withdrawal agreement with the EU ahead of
the UK's departure from the bloc in March, the MPC will proceed next Thursday on
the assumption that a deal will be secured.
     The MPC hiked Bank Rate 25 basis points in August and members are in no
rush to make the next move.
     "It is prudent to let the effect of the last move sink in and continue
monitoring the evolution of the economy," MPC member Silvana Tenreyro told the
Treasury Select Committee Tuesday.
     Average weekly earnings growth is running at about 2.7% -- in line with
Bank forecasts - and Tenreyro sounded bullish on the earnings outlook at the
     The labour market "is extremely tight right now ... companies are reporting
difficulties recruiting and retaining staff ... That has translated into a
pick-up in wages and, given the low productivity, that is pressure on unit
labour cost and unit wage costs," she said.
     The September meeting will be the first for Jonathan Haskel, who in his
confirmation hearing with the TSC cited structural reasons why wage pressure may
be relatively weak.
     These included the reduced bargaining power of workers and the growth of
part-time work. As he replaces Ian McCafferty, who led the way in pushing for a
hike, Haskel may add a dovish tinge to the September minutes.
     But, in eschewing analysis of the implications of alternative Brexit
scenarios, the MPC will be left following its convention of looking at the
likely economic outturn based on average of Brexit outcomes - a scenario that
can never materialize.
     In reality, the future path of policy setting will bifurcate dramatically,
with the MPC set to proceed with a gentle tightening if the Brexit process runs
fairly smoothly whereas members would face a tough trade-off between tolerating
higher inflation and supporting activity if negotiations fail.
     The timetable is tight for the UK and the EU to agree a withdrawal
agreement, on which a transition period after Brexit depends.
     The question of how the MPC would respond of no deal dominated Tuesday's
TSC hearing.
     "What we are seeing is still an economy that by and large is operating as
if there will be some form of agreement and certainly some form of transition,"
Carney said.
     "From the MPC's perspective, until something considerably changes and no
deal moves to be the central scenario and households, businesses and financial
markets start acting that way, one would not expect to see us adjust our
forecast and certainly our orientation of policy," he added.
     All analysts expect a nine-to-zero vote for no change in policy, with the
announcement out at 1100 GMT Thursday.
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,MT$$$$,MX$$$$,M$$BE$]