MNI POLICY: BOE Haldane Says Recovery Still V-Shaped

-BOE Tenreyro: Says UK Facing Deflationary Pressure

-Tenreyro Foresees Interrupted V Recovery; Social Distancing Weighs

By David Robinson

     LONDON (MNI) - Bank of England Chief Economist Andy Haldane said Monday he

was sticking by his view that the economic recovery has so far been V-shaped,

adding that fast indicators suggest the economy is growing by about 1% a week.

     Haldane, who was giving evidence to the Treasury Select Committee, was

alone in voting against increasing quantitative easing at the June meeting. He

said that he did not believe that the MPC was out of ammunition if further

policy action was required, but that he had not been persuaded that it was

needed.

     Asked if he stuck by his belief in a V-shaped recovery, Haldane said that

it was clear from the newer, faster indicators "that the UK economy hit its

floor around the middle of April" with the recovery picking up pace in June and

into July.

     "We are already three months into a recovery in activity in the economy.

Over the last 10 weeks or so the economy has probably been growing at an average

of around 1% per week," he said.

     The upshot of this is that "roughly half of the roughly 25% fall in

activity during March and April has been clawed back," he said.

     Haldane said that his vote against QE in June "was not because I thought it

was unfeasible to do it but I just didn't think it was necessarily needed given

the very significant degree of monetary, and indeed fiscal, stimulus that is

already in the system."

     He said the MPC could purchase more gilts or corporate bonds and that

negative interest rates were under review.

     --TENREYRO SEES SWOOSH

     Haldane's colleague, MPC member Silvana Tenreyro, was dismissive of the

idea that the V-shaped recovery could be maintained, saying that she anticipated

an interrupted V, or a swoosh shaped, one.

     Tenreyro said demand was falling significantly behind supply and even after

lockdown measures were lifted there would be some voluntary social distancing,

which would hit economic activity.

     "I think we face an interrupted, or incomplete, V-shaped trajectory," she

said.

     The initial step-up in activity "should come quickly and mechanically as

businesses re-open" and that this would look at first like a V-shaped recovery

but other factors would then weigh on demand, she added.

     "I think spending in many sectors is going to suffer because of perceived

health risks," including in accommodation, food and travel and "this will in

turn feed into high unemployment and lower incomes and hence affect other

sectors," she said.

     --DISINFLATIONARY PRESSURES

     "My big concern is ... voluntary social distancing as we exit the mandated

closures," she said. 

     "Right now we are facing deflationary pressures, the challenge for us is to

get to the inflation target," she added.

     Both Haldane and Tenreyro in their evidence also cited forward guidance as

a policy tool that could be used to add stimulus and both made the case when

asked that the current regime of flexible inflation targeting was superior to

switching to a nominal GDP target.

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

[TOPICS: M$B$$$,M$E$$$,M$$BE$]