MNI Policy: BOE Vlieghe: One/Two Hikes A Year If Smooth Brexit

-BOE Vlieghe: Defends Bank Approach Of Averaging Brexit Outcomes

By David Robinson

     LONDON (MNI) - Bank of England Monetary Policy Committee (MPC) member

Gertjan Vlieghe said he stuck to his view that one to two 25-basis-point rate

hikes a year were likely to be appropriate, but only if there was a smooth

Brexit process.

     "My own central forecast was consistent with about one to two rate hikes a

year. I think that still seems broadly right, with all the caveats," Vlieghe

said in a question and answer session after giving a speech at Imperial College

Business School.

     Other main points are as follows:

     -His expectation of a gradual tightening depended on the MPC's assumptions

of a smooth Brexit and "a slow but steady pick-up in pay growth relative to

productivity" holding good.

     -In case of a disorderly Brexit, the current guidance would be void, as

policy changes might be neither limited, nor tightening, nor gradual.

     -Vlieghe said the MPC's approach of conditioning forecasts on a smooth

transition to an average of Brexit end states - an average that can never

materialize in practice - will only change when "we are actually much further in

the negotiations and it becomes clear what by far the most plausible of these

outcomes is."

     At the moment, he said it would not be practical to take the alternative

approach of weighting different possible scenarios.

     "We do not have enough information to make that probabilistic assessment.

We are not making a running commentary on what is more likely or less likely,"

he said.

     - He defended the MPC's approach of planning to start the QE unwind only

when Bank Rate reaches 1.5%, up from its current 0.75%, saying an earlier unwind

could be misleading. QE, he argued in his speech, works principally by

influencing expectations of future interest rates.

     "We want to be very careful that we don't send an inadvertent signal about

monetary policy ... We want to make sure that when we start selling assets we

don't inadvertently send a signal that 'Oh, these guys will be tightening much

faster ... than previously understood,'" he said.

     -The BOE has looked closely at how the QE unwind has gone in the United

States. So far it has had negligible, if any, impact on the yield curve or real

economy.

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

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