MNI POLICY: BOE's Post-Brexit Policy Could Go Either Way

-BOE MPC Giving Evidence To TSC Cagey On Likely Response To No Deal

By David Robinson

     LONDON (MNI) - Senior Bank of England officials said it was not possible to

anticipate the policy response to a no-deal Brexit, despite a comment by one of

their colleagues who said that easing, or a prolonged interest rate pause, would

be the most likely outcome.

     Following are highlights after Bank of England Governor Mark Carney, Deputy

Governor Dave Ramsden and external Monetary Policy Committee members Gertjan

Vlieghe and Jonathan Haskel gave evidence to the Treasury Select Committee

Tuesday:

     -- Both Haskel and Ramsden said they would want to see how things unfolded

in the event of no deal rather than stating what the policy response was most

likely to be in advance.

     In contrast, Vlieghe has said publicly that easing, or a prolonged pause,

would be more likely in the event of no deal Brexit.

     Ramsden noted that there were signs of higher inflation expectations, which

may be due to Brexit. If inflation expectations rise as a result of a sterling

fall and a supply side hit that would tilt against easing.

     Carney said that the MPC would provide as much stimulus as it could but

that it would be constrained by the economic outlook.

     "We will do what we can but we shouldn't oversell what we can do," he said.

     --Carney said that the BOE would continue to do everything it could to

ensure that the financial system functioned smoothly in the event of a no-deal

Brexit.

     On Tuesday the Bank said it would increase the frequency of it marked wide

Indexed Long-Term Repos (ILTRs) from monthly to weekly around the planned EU

withdrawal date.

     The Bank has not seen any liquidity problems so far and this was simply a

precautionary move, Carney said: "There is no signal in it. It is part of normal

contingency planning."

     He added that the Bank also "stands ready to provide liquidity in all major

currencies."

     The BOE also has swap lines in place with other major central banks.

     --Ramsden in his written evidence was downbeat about the near-term economic

outlook: "The key developments in the economy in recent quarters have been the

increase in uncertainty about the resolution of the Brexit negotiations, against

a backdrop of slowing world demand growth and tighter global financial

conditions."

     He expected "these trends to persist into Q1, and agree[d] with the MPC's

judgement that even with weaker aggregate supply growth a small margin of slack

is likely to open up this year."

     The 3.7% fall in business investment over the past year was "incredibly

unusual" and that Brexit related uncertainty was likely to hit the economy "for

at least another year."

     "What we are seeing in real time is how an economy deals with

multi-dimensional uncertainty," he said.

     Further ahead he believed that inflation would hold above target, growth

pick up and gradual tightening would be justified - bringing his views into line

with the MPC's central projections in the February Inflation Report.

     --Carney too was downbeat about the near-term outlook but thought the

turbulence would fade.

     He said that the current slowdown "reflects softer activity abroad and

greater effects from Brexit uncertainties at home."

     "This uncertainty is creating a series of tensions for business, households

and in financial markets that will cause short-term volatility in the economic

data, which I expect to provide less of a signal about the medium-term outlook."

     He noted the BOE does not have a no-deal Brexit in its central economic

forecasts and had thought in its February forecast that it was more likely than

not than some sort of deal would be struck, although he acknowledged that

uncertainty had risen.

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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