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-Tenreyro: Unlikely To Back Rate Hike In Next Few Months If Brexit Deal Done
By David Robinson
     LONDON (MNI) - Bank of England Monetary Policy Committee member Silvana
Tenreyro said that in her view policy was most likely to be eased in the event
of a disruptive Brexit but that this was not certain.
     Even if there were to be a Brexit deal then the external MPC member said
she would probably not back tightening policy.
     In a speech at Birkbeck, University of London, Tenreyro said that Brexit
uncertainty had increased and that markets were now factoring in a rate cut. UK
inflation, however, is currently at its 2.0% target and may rise above, making
the policy response tricky.
     The BOE's May Inflation Report showed headline CPI inflation dipping below
the 2.0% target before moving just above it in Q1 2021 and staying above it
through to the end of the forecast in Q2 2022. The MPC faces a dilemma as its
macroeconomic forecasts are based on market rate assumptions, which factor in a
hard Brexit, while the MPC's central case assumes a smooth transition to a
Brexit deal.
     The following are key points from the speech:
     -In the event of a disorderly Brexit, that is the UK leaving the EU with no
deal at the end of October, "in my view it is more likely than not that the
appropriate response would be a loosening, but this is by no means certain,"
Tenreyro said.
     -Brexit uncertainty and stockpiling and de-stocking linked to it are
distorting UK economic activity, but core inflation is not weak, unlike in the
euro area and US.
     "Brexit uncertainty has also injected volatility into the outlook for UK
activity, with stockpiling responsible for part of the strong growth figure in
Q1, which looks likely to give way to a far weaker outturn in Q2," Tenreyro
     -She cited a number of factors pushing up on inflation and making a policy
easing more problematic.
     "The labour market remains tight: employment and hours worked growth have
been strong (although average hours seem also to have been boosted by
stockpiling in the manufacturing sector). So too has unit labour cost growth,"
she said.
     -Even in the event of a Brexit deal, Tenreyro said that it was unlikely she
would back a rate hike in coming months, as sterling would likely strengthen
against a backdrop of a global economy showing signs of weakness.
     "A stronger pound would serve to dampen import price growth, moderating
upward pressure on CPI inflation from strong labour cost growth. Coupled with
signs of a weaker global outlook, recent developments likely lengthen the period
until there is a sufficient pickup in inflationary pressures for me to vote to
raise Bank Rate," she said.
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,M$$BE$]