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MNI (London)
-Tenreyro: Expects Couple of Bank Rate Hikes If Econ Evolves As BOE Forecast
By David Robinson
     LONDON (MNI) - Bank of England Monetary Policy Committee member Silvana
Tenreyro said Monday she anticipated a couple more Bank Rate hikes in the next
couple of years if the economy were to evolve in line with the MPC's central
     But she warned that if productivity growth differed from the MPC's
expectations this would alter the rate path.
     In her inaugural speech as an MPC member, Tenreyro told an audience at
Queen Mary College in London that the risks to the MPC's productivity forecast
were skewed to the upside. If productivity growth does turn out stronger than
the committee anticipated, at first glance that would suggest an even lower path
for Bank Rate, but Tenreyro said that the evolution of demand in response to
productivity changes would be key.
     "If the economy evolves as in our November forecast, with steadily
increasing domestic inflationary pressures, I expect perhaps a couple more
increases in Bank Rate will be required over the next three years. But a
different outturn for productivity growth would affect that policy rate path,"
Tenreyro said.
     The MPC hiked Bank Rate to 0.5% in November and her comments are consistent
with market expectations for it to crawl up to around 1.0% over the three year
forecast horizon.
     Productivity growth, however, is a wildcard with the MPC only anticipating
a gentle rise in productivity from its historically low levels. Tenreyro looked
at the evidence and concluded that productivity growth could be more robust than
     She noted that just two sectors, finance and manufacturing, accounted for
the bulk of the UK's productivity slowdown. 
     The financial sector's drag on productivity should evaporate with
deleveraging ending and firms' and households' leverage ratios returning towards
historic norms. The global recovery should alleviate the pressure on investment
and productivity.
     "Strong global growth should help support a recovery, especially if
uncertainty were to be resolved," Tenreyro said.
     "In the medium term the risk to productivity may be skewed to the upside,"
Tenreyro noted.
     "The question from an MPC perspective will be how quickly demand responds,"
she added.
     London School of Economics Professor Tenreyro joined the MPC on July 5 last
year and her term runs until July 4, 2020. In November, she voted with the
majority on the committee in favour of a 25 basis point rate hike.
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,M$$BE$]
MNI London Bureau | +44 203-865-3812 |