MNI POLICY: Carney Says UK Economy Shows Signs of Improvement

-BOE Carney Says Banks Stress Tested Against Economic Shock Way Greater Than

Corona Virus

By David Robinson

     LONDON (MNI) - Bank of England Governor Mark Carney said the UK economy had

shown signs of improvement since the November election, but that the Bank could

still provide more stimulus if it began to flag.

     The following are points from Carney's testimony to the House of Lords

Economic Affairs Committee:

     -The MPC left Bank Rate on hold at its January meeting, with two members

backing a 25-basis-point cut, and Carney said that the post general election

data had shown signs of improvement.

     But, he said "there is some slack in the economy ... we do think we should

be providing some stimulus to bring economy back to its trend rate of growth."

     The latest data were "consistent with a bounce coming" but he held the door

open to a future rate cut, saying that if the bounce did not materialise "we

would provide some (further) stimulus."

     -Carney noted that the March 11 Budget was expected to provide fiscal

support and that the MPC "would have to take into account the stimulus provided

there."

     He was questioned about the Bank's assumption that potential growth had

shrunk to just 1.1%. He said that this reflected a continuation of demographic

effects, with labour supply have hit its upper limit, and of Brexit uncertainty.

     He said the effects of Brexit uncertainty, at least, should diminish.

     -Asked about the impact of the coronavirus, Carney noted that the gloomiest

current scenarios had Chinese growth slowing by a couple of percentage points,

down to around 4% annualised.

     He noted that the BOE stress tests for banks had incorporated a recession

in China, which was many orders of magnitude greater than likely coronavirus

effects, and it did not appear to pose a financial stability risk.

     -While it is desirable to review monetary policy frameworks on a periodic

basis, Carney said "the bar for change is very high" for any change to the

monetary policy framework - under which the Bank targets a single 2.0% CPI

inflation target. The current system has served the UK well, with the monetary

and macro and financial stability arms all communicating with each other, he

said.

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

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