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AOFM Weekly Issuance Slate

JPY

Slow Start To Friday Trade

-Carney Says Monetary Policy Response To No Deal Brexit, Global Trade Shock
Limited
By David Robinson
     LONDON (MNI) - Bank of England Governor Mark Carney said today that there
are limits to how extensive the monetary policy response to further trade shocks
and a no deal Brexit could be, and that fiscal policy would have to play a key
role.
     Carney, in a speech at a Local Government Association event, painted a
picture of mounting global trade tensions and stalling growth but the Monetary
Policy Committee's response to another shock would be restricted, as it cannot
keep stretching the time period over which it would tolerate an inflation
overshoot.
     The following are key points from Carney's speech: 
     -Carney noted that in the May Inflation Report forecast round the MPC was
factoring in an easing in global trade tensions, but that things had
deteriorated since then, most notably with a resurgence of friction between the
US and China.
     "The latest actions raise the possibility that trade tensions could be far
more pervasive, persistent and damaging than previously expected. The rationales
for action are broadening," he said.
     -Carney said there was a risk of trade tensions creating negative effects
that go far beyond the measured effects of increased tariffs, as they could hit
supply chains and business confidence.
     "The early indications are not promising. The more hostile and uncertain
trading environment is coinciding with sharp slowdowns in global trade,
manufacturing, industrial production and capital goods orders," he said.
     -The heightened risk of no deal Brexit comes against the backdrop of a
worsening global picture, with Carney saying that financial markets are now
putting around a one-in-three chance on no deal.
     The latest surveys suggest that UK economic growth has stalled.
     With the equilibrium interest rate low and inflation at target the monetary
policy response will be restricted.
     "If there is a material trade shock, other policies, including fiscal
policies, would likely need to play important roles in supporting the economy,"
Carney said.
     -He highlighted the fact the MPC's forecasts, based on a smooth Brexit, and
asset prices factoring in a one-in-three chance of no deal were out of synch and
said that the Bank would look at how best to illustrate these discrepancies in
its August report.
     MNI has previously highlighted how the Bank will have to think afresh about
the disconnect between its Brexit assumptions and the markets' ones.
      
       
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
[TOPICS: M$B$$$,M$E$$$,M$$BE$]