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-Haldane Sees Further Modest Reduction Of Stimulus Ahead
By David Robinson
     LONDON (MNI) - Bank of England Chief Economist Andrew Haldane said further
monetary tightening would be justified if growth continues at around its trend
rate, despite volatility in quarterly GDP data.
     Speaking at an Institute for Government event Haldane said the economy had
little or no spare capacity, pointing to upwards pressure on inflation, despite
growth running at a pace that is slow by historic standards.
     Following are main points from his remarks:
     -"The output gap is close to being, if not already, closed", and as a
result, the Monetary Policy Committee cannot justify looser policy.
     -If the economy grows at around its current rate "that would lead to excess
demand", with cost pressures rising, and this "would be the prompt for a further
modest reduction in the degree of accommodation."
     Updated second quarter GDP data will be published Friday, with analysts
expecting no revision to the 0.4% quarterly growth rate.
     -The Bank's chief economist was downbeat about the outlook for productivity
growth. He said the MPC's central assumption was for productivity growth to be
around 1%, but that post-global-financial-crisis experience suggested that even
this might be over-optimistic.
     The bulk of UK firms perform badly on productivity, he said, citing
relatively low levels of managerial skills as one country-specific factor.
     "I have been strongly persuaded a significant contributor to the long-tail
(of low productivity firms) ... is the long-tail of management skills," he said.
     -Haldane defended the use of quantitative easing, dismissing the view that
it should not be deployed because it has distributional effects by boosting the
wealth of the asset rich.
     He said that detailed analysis indicated that almost everyone had benefited
and that all monetary policy had distributional effects anyway.
     -He also strayed into the area of fiscal policy, by supporting increased
infrastructure spending, saying that "the case for it is extremely well made by
the government's own documents."
     -The increase in Bank Rate from its low of 0.25% to 0.75%, which Haldane
supported, has not dented demand and has "occurred pretty seamlessly."
     He noted that people who have renewed fixed rate-mortgages may have seen no
impact from the tightening, as fixed rates on average have been running at lower
levels than when tightening started.
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: MX$$$$]

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