MNI POLICY: BOE's Vlieghe Sees Rate Hike Unlikely In No Deal

     LONDON (MNI) - It is more likely that the Bank of England holds or cuts

Bank Rate in the event of a 'no deal' Brexit, even if a weaker pound and tariffs

on imports temporarily push inflation higher, Bank of England Monetary Policy

Committee member Gertjan Vlieghe said Friday.

     But the response to 'no deal' would not be automatic, and would depend on

the balance of the impact on demand, supply and the exchange rate, Vlieghe said.

     Here are other key points from his speech:

     --"On balance I think it is more likely that I would move to cut Bank Rate

towards the effective lower bound of close to 0% in the event of a no-deal

scenario."

     --A smooth Brexit will likely see business investment growth improve, which

would push overall growth up above potential again, from its current

below-potential pace, Vlieghe said, referring to analysis based on an average of

possible scenarios for a negotiated exit from the EU.

     --Such an outcome would be likely to result in upward wage pressure, and

therefore upward pressure on underlying inflation. This would justify further

limited and gradual rate increases, potentially allowing Bank Rate to reach

1.00% in a year's time, 1.25% in two years' time, and 1.75% in three years'

time, with large uncertainty bands around this central path. Much would depend

on how the global economy evolves.

     --If the global economy weakens further and global uncertainty remains

high, the resulting headwind could offset the tailwind from a smooth Brexit.

     --"'Smooth Brexit' and 'no deal' scenarios are not the only two scenarios.

One can imagine a scenario where a deal is not agreed later this year, but a no

deal scenario is avoided temporarily. That would likely involve ongoing

headwinds to the economy from uncertainty, while avoiding the disruptive

supply-side impact of no deal."

     --Wage growth seems to have eased a little, down to a pace closer to 3%,

Vlieghe said. He noted that the Bank's Agents also report that upward pay

pressure, which had been rising for the past two years or so, has stabilised.

Services inflation looks like it might be moving higher at last, he said, but

only very slowly and from a low rate.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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

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