MNI POLICY: BOE Carney Ready To Stay On; Brexit Shape Unclear

-Key Points From BOE's Carney, MPC at Treasury Select Committee

By David Robinson

     LONDON (MNI) - Bank of England Governor Mark Carney told the Treasury

Select Committee he was prepared to stay on as BOE head beyond June 2019.

     -Appearing before the TSC to give evidence on the August Inflation Report,

Carney gave his first public response to media speculation about whether he

would extend his time as governor. In response to questions, he revealed he had

told Treasury head Philip Hammond he was willing to remain in his post to help

see through the Brexit process and that he anticipated an announcement

"relatively shortly."

     Mark Carney's term of appointment was originally for up to eight years from

July 1 2013 but in 2016 he had said that he would leave on June 30 2019.

     -In the event of no deal between the UK and the EU by the March 2019 date

for Brexit, Carney and his MPC colleagues Andy Haldane and Silvana Tenreyro

stressed that inflation was likely to rise due to a fall in sterling.

     Carney said foreign exchange option prices indicated that "there would be

another downward movement in sterling" in the event of no deal.

     Past experience shows that the pass-through from currency moves to domestic

prices can persist for two or three years, which is a prolonged period for the

MPC to look through in setting policy.

     -While inflation is likely to rise if Brexit talks fail, the MPC could well

decide against tightening policy to help soften the shock of no deal.

     Carney noted that UK firms were acting on the assumption that a transition

period would be agreed with the EU, so no deal would come as an economic shock.

     "I expect that the MPC would want to use the flexibility it has" to support

activity, Carney said.

     -Carney was pressed about the chances of there being no deal on Brexit, a

subject which dominated the TSC session. He declined to put a probability on it.

Haldane cited a BOE business survey putting it at one-in-four, up from

one-in-five a few months ago but only back where it was a year ago.

     -Haldane said the MPC wanted to know the scale of risk companies faced from

a no deal scenario, but he said that it was up to government to get companies

"to change gear" and step-up Brexit preparations.

     -Tenreyro, in her written evidence to the TSC, made clear she was in no

hurry to tighten policy further after the 25 basis point August rate hike,

despite expecting inflation to hold above target.

     "As of now, I think it is prudent to let the effect of the last move sink

in and continue monitoring the evolution of the economy," she said.

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

[TOPICS: MABDS$,MAUDR$,MAUDS$,MMUFE$,M$B$$$,M$E$$$,M$U$$$,M$$BE$]