MNI POLICY: BOE Carney Says No-Deal Brexit Investor Bets Grow

By David Robinson

     LONDON (MNI) - Bank of England Governor Mark Carney said investors were

placing growing more weight on the possibility of a no-deal Brexit and that

there was a "natural tension" between this and Monetary Policy Committee's

projections which assume a negotiated exit by the UK from the EU.

     Here are key points from testimony by Carney and fellow Monetary Policy

Committee members Jon Cunliffe, Silvana Tenreyro and Michael Saunders to the

Treasury Select Committee on the BOE's May Inflation Report:

     --Markets are currently not pricing in any rate hikes through 2020 while

MPC guidance is for limited and gradual hikes, and Carney and colleagues spelled

out the differences in market and BOE assumptions.

     "Market expectations of no deal have gone up in recent months," Carney

said, calling the increase "notable."

     Carney declined to be drawn on how likely he personally thought no deal

was.

     --The MPC members highlighted how Brexit uncertainty is hitting business

confidence and activity.

     "The degree of uncertainty is as high as before the March 29 deadline (the

previous Brexit deadline)," Carney said

     "This uncertainty effect that has been weighing on business is continuing

to operate," he added.

     Saunders and Carney both stressed that the continuing uncertainty over

Brexit encourages business managers to wait and see what emerges.

     "Rolling short term uncertainty is particularly damaging for business

activity and confidence," Carney said.

     He added, however, that a no-deal Brexit was what businesses fear the most.

     --Carney said he believed the MPC was more likely to deliver stimulus than

tighten in the event of a no deal.

     Some MPC members, including deputy governors Ben Broadbent and Dave

Ramsden, together with Saunders, have publicly stuck to the line that policy

could move either way in the event of a no-deal Brexit and have declined to say

that easing or tightening was more likely.

     --While business confidence and activity have been hit by Brexit, the

effect has been less clear on consumption.

     Carney said consumers ability to service debts was as good as it ever has

been. Households have deleveraged while employment is high and interest rates

low.

     Saunders said the impact of the two previous BOE rate hikes on mortgage

rates "had been pretty small so far," with lenders' rates not fully reflecting

them.

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

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