MNI POLICY: BOE Cunliffe: Wary Over Hike; Stodgy Policy Best

By David Robinson

     LONDON (MNI) - The following are five things we learned from Bank of

England Deputy Governor Jon Cunliffe's speech at the Cumbria Chamber of

Commerce.

     -Cunliffe made the case for a cautious approach to tightening. He endorsed

the big picture view of his  colleagues that the economic weakness in the first

quarter was ephemeral and that economic growth is  back around trend, but he

still spelt out reasons for wariness over reducing monetary stimulus. Having

opposed the November rate hike Cunliffe remains at the dovish end of the

Monetary Policy Committee (MPC).

     -Cunliffe acknowledged the pick-up in pay growth but questioned whether it

would pick-up pace. He said that while 3 month on 3 month pay growth, has been

above 2.5% between May and March this year - its longest such since the global

financial crisis hit, he was not convinced it was heading higher still. "The

latest readings do not signal strongly that pay growth will make the next step

to establish itself firmly in 3% territory in line with the (BOE's) May

forecast. We may still be underestimating supply in the labour market," he said.

     -He said that the "lesser risks" were the upside ones for inflation - of

domestically generated inflation rising faster than expected and productivity

growth disappointing. Instead, he said some of t the new economic relationships

may persist. Current features such as softer pay growth accompanying elevated

employment and low interest rates may continue. 

     -Cunliffe restated that MPC's familiar line that it will not second guess

possible Brexit outcomes or allow uncertainty over the outcome to influence

policy setting. The headline news flow over Brexit is not a material factor for

the MPC, which bases its projections on an average of potential outturns. "It

would be mistaken, to set policy in anticipation of any particular Brexit

outcome. There is a very wide range of possible outcomes and paths to those

outcomes," he said.

     -Cunliffe's balanced speech leaves it uncertain whether he will endorse or

oppose a hike at the August meeting. His concluding comments, however, mark him

out as someone who will continue to be cautious over any rate increase, and

would make it unsurprising if he held off endorsing tightening. "Looking to the

medium term, there remains a case for a little (policy) 'stodginess' yet," he

said.

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

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