Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
Reporting on key macro data at the time of release.
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
- MNI ResearchMNI Research
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
- About Us
By David Robinson
LONDON (MNI) - The Bank of England would be likely to raise its key policy
rate if consumer demand held up in the event of a no-deal Brexit, Governor Mark
Carney, Deputy Governor Jon Cunliffe, Chief Economist Andy Haldane and
Monetary Policy Committee member Michael Saunders did not unveil the Monetary
Policy Committee's detailed Brexit scenario analysis when they gave evidence to
the Treasury Committee on Tuesday, but did comment on the issue of the UK's
withdrawal from the EU.
Following are key points from the evidence session:
--Asked what would happen if consumers were upbeat in the event on news of
a no deal Brexit but financial markets took a negative view, Carney said that
mix would point to policy tightening.
"If the economy moved further into excess demand because the rate of
spending was maintained or accelerated" and sterling depreciated on a no deal
scenario and the supply side was hit "I would expect that monetary policy would
be tightened," Carney said.
--Carney highlighted how hard it is for the Bank to get a fix on the
potential impact of a no-deal Brexit.
Large supply shocks are rare and "you have to stretch back into the 1970s"
to see anything comparable, he said. But the expectation is that investment, and
particularly inward investment, would be hit hard.
"You would see some immediate supply-side shock," Haldane said.
--Cunliffe and Saunders both said that there were signs of a slowdown in
economic activity in the fourth quarter, extending into early 2019.
"Surveys of output and investment are pointing to subdued growth in coming
months," Cunliffe said in his written testimony, adding that business investment
has been falling.
"It seems likely that economic growth in Q4 2018 and perhaps Q1 2019 will
slow from the strong gain (0.6% on the quarter) recorded in Q3. That is partly
because Q3 growth itself benefited from erratic gains in some areas, for example
construction, after earlier weakness," Saunders said.
--MPC members are divided as to how likely pay growth is to accelerate
Saunders highlighted upward pay pressure. He noted that surveys showed
firms' recruitment difficulties were "at or around the highest levels recorded
in recent decades" and that underlying pay growth had picked up to around 3%
from 2% to 2.5% a year ago.
Cunliffe noted that pay growth has previously undershot the MPC's forecasts
and that it was unclear to what extent changes in the labour market had affected
the relationship between unemployment and pay.
Cunliffee argued for a cautious approach to tightening, while backing the
MPC's view that gradual rate increases were likely.
"In a period where there remained significant structural uncertainties
about the post-crisis economy and the relationship between the balance of supply
and demand on the one hand and inflation on the other ... there needed to be a
higher evidential threshold for policy changes," he said.
--MNI London Bureau; tel: +44 203-586-2223; email: email@example.com