Trial now

Put spread bought again


GBP Edges Off Early Gains


Attention turns to the ECB

By David Robinson
     **LONDON (MNI) - Bank of England Governor Mark Carney gave evidence to the
House of Lords Economic Affairs Committee Tuesday. Here are five things we
     1) Carney said that the rise in earnings anticipated by the Monetary Policy
Committee "appears to be on track."
     The MPC is undertaking the February Inflation Report forecast round and
Carney said that members believed that the labour market has tightened further.
In November, the MPC forecast that four quarter average weekly earnings would
rise to 3.0% in Q4 2018 and 3.25% in 2019.
     The MPC will debate, and very likely split, over its earnings forecast but
Carney's comments suggest that he is comfortable with the current forecast.
     2) Carney gave credence to the view that the BOE Monetary Policy Committee
will upgrade its growth forecasts in the February Inflation Report. He cited the
strength of the global economy and the rebound in euro area growth. He said that
the International Monetary Fund's latest forecasts for growth this year in the
UK were "a little light."
     The IMF forecast UK growth of 1.5% in 2018 and 2019. The BOE's November
Inflation Report was already higher than the IMF's. The MPC predicted 1.7% for
both 2018 and 2019 Q4 four-quarter growth, but these could well be nudged up
when the new BOE forecasts are published on February 8.
     3) If the UK does accept the EU's offer of a Brexit transition period
extending to December 2020, that would be bang-in-line with the BOE's
forecasting assumptions.
     Carney told the Lords committee that the Bank has been forecasting the
impact of Brexit by taking the average effect of a range of plausible outcomes.
He said that the BOE has assumed a slow, smooth transition to Brexit with the UK
moving to its new trading arrangements from 2021.
     4) Carney remains crystal clear in his view that Brexit has had a
substantial negative effect on the UK economy. He put the focus on the UK's
recent underperformance relative to other advanced economies. He said that
business investment growth was nowhere near in line with that seen overseas. UK
business investment has been running a couple of percentage points below the
4.0% growth seen elsewhere.
     5) Carney said that it would be good if the UK consolidated its inflation
measures and focussed on just one. Index-linked gilts, train fares and student
loans are currently based on RPI, while the MPC's inflation target is based on
CPI and the Office for National Statistics favoured measure is CPIH. Carney said
he did not want to see contracts, and index linked gilts, shifted to CPI and
then on to CPIH.
     His logic is that if CPIH is going to become the dominant measure it would
be better to avoid the interim CPI stage for new contracts.  He said that CPIH
does not yet have a long enough track record as an inflation measure. The
implication is that the Bank will not be pushing for any instant change to its
inflation target.
--MNI London Bureau; tel: +44 203-586-2223; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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