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-BOE Vlieghe: One 25bps Hike A Year Central Case On Smooth Brexit
By David Robinson
LONDON (MNI) - A hard Brexit will likely lead to an easing or prolonged
pause in Bank of England policy although interest rates could still move in
either direction, Monetary Policy Committee member Gertjan Vlieghe said
This was the first time that an MPC member has given a clear indication of
the likely policy path following a 'no deal' outcome to Brexit talks. Market
pricing makes clear that participants also believe more stimulus is likely.
The following are key points from the speech at the Resolution Foundation:
--Vlieghe said that while all paths were possible in the event of no deal
"not all are equally likely in my view. In the case of a no-deal scenario I
judge that an easing or an extended pause in monetary policy is more likely to
be the appropriate policy response than a tightening."
He said that policymakers would have to monitor in real time how business
and consumers were reacting to a disruptive Brexit but he was crystal clear
about which path he thought was most likely.
--Even in the event of a smooth Brexit Vlieghe said that policy would only
be tightened very gradually, and less rapidly than the couple of hikes a year
that he had previously thought possible. "I judge that the net balance of
economic news has been to the downside. I therefore consider that the
appropriate pace of monetary tightening is somewhat slower than I judged it to
be a year ago," he said.
"A path of Bank Rate that involves around one quarter point hike per year
seems a reasonable central case," Vlieghe said.
--The MPC member acknowledged the slowdown in global growth and said that
it was significant. "The world economy (is) slowing meaningfully relative to a
year ago," he said.
He added that uncertainty was exceptionally high with Brexit adding to the
doubts over what was likely to unfold for the UK against a deteriorating global
"Over the past year, the global economy has lost some of its momentum. Euro
Area growth has fallen back to just above 1%. Growth disappointed in emerging
markets too. The US was the outlier initially, with growth even accelerating in
H1 2018. But in recent months, the data has shown some loss of momentum in the
US as well," he said.
--The optimistic case, set out in the central forecast in the BOE's
February Inflation Report, is that global growth will soon bottom out but
Vlieghe said that there were also downside risks.
"The US fiscal impulse has only just peaked, and is set to fade from here.
Uncertainties about the trade war do not appear to be close a resolution. And
the wider political uncertainties that may be weighing on financial market
sentiment and investment decisions may well persist for years to come, and could
yet worsen," he said.
--MNI London Bureau; tel: +44 203-586-2223; email: email@example.com