MNI FIVE THINGS: BOE MPC Opposed To Published Rate Forecasts

--Five Things We Learnt From BOE MPC Members At TSC

By David Robinson

     LONDON (MNI) - The following are five things we learnt from the evidence of

four Bank of England Monetary Policy Committee (MPC) members -- Governor Mark

Carney, Deputy Governor Dave Ramsden and externals Gertjan Vlieghe and Michael

Saunders -- at the Treasury Select Committee Tuesday.

     -The majority on the MPC is opposed to publishing a rate forecast, while

Vlieghe came out in favour of it. Ramsden said that there was a risk of

confusion that an MPC rate projection would be seen as a promise and that the

committee's current communication was "working well." Saunders said that he was

concerned about false precision in producing a quarter-by-quarter forecast. An

MPC rate forecast could not be so finely calibrated.  It was already public

knowledge that MPC member Ian McCafferty was opposed to publishing a rate

forecast, and Carney stressed that the majority are. The chances of the

committee publishing an in-house rate forecast near term appear to be

vanishingly small.

     -Saunders, who voted for a 25 basis point rate hike at the May meeting, did

not believe that the costs of waiting were great or that a pre-emptive hike was

needed. His belief instead was simply that the data and outlook justified

tightening now, with unemployment near its equilibrium rate and likely to head

lower. Saunders said he thought that inflationary pressures would be stronger

than consensus.  "I am not trying to get ahead of the curve," he said.

     -A key message from members of the majority no change camp at the TSC was

that they had simply wanted to wait-and-see how the data unfold after the soft

first quarter, when headline quarterly GDP growth fell to just 0.1% They were

not, necessarily, gloomier about the current state of the economy than Saunders

but they did not see any great risks to delaying a hike, with Carney saying he

did not believe economic circumstances had changed and Vlieghe arguing that the

costs of delaying a hike were very low. All of this suggests that if the data

firm between now and the August meeting a hike then would be on the cards.

     -Brexit remains a big unknown, but much of the impact is going to be felt

outside the MPC's three year forecast horizon. Saunders said he agreed with the

IMF and OECD that over the longer-term it would probably have a modest, negative

effect. Carney stressed that many of the expected effects lay well beyond the

MPC's policy horizon. The MPC's focus instead is on the way business and

households respond to unfolding Brexit developments, and here the evidence is

mixed. Ramsden noted that Bank survey evidence had found Brexit moving up the

list of firms' concerns but the impact on investment appears to be levelling

off. A hard Brexit is viewed by the Bank primarily as a financial stability

risk.   "We are confident that the financial sector can deal with the shock"

Ramsden said.

     -Carney appears to be committed to his plans to leave the Bank at the end

of June next year. He declined to be drawn on questions of whether he could stay

if Brexit unfolded in some disorderly way. 

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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