MNI Policy: BOE Haldane: Further Tightening Justified

-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: david.robinson@marketnews.com

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