MNI POLICY: Easing More Likely On Hard Brexit: BOE Tenreyro

--Tenreyro, Like Vlieghe, Sees Easing Likelier Response To Disorderly Brexit

By David Robinson

     LONDON (MNI) - In the event of a no-deal Brexit, an easing of monetary

policy was more likely than tightening, Bank of England Monetary Policy

Committee member Silvana Tenreyro said Thursday.

     Her comments align with those of her college, Gertjan Vlieghe. Other MPC

members have refused to attach any weights to the likely policy response to no

Brexit.

     The following are the key comments from Tenreyro's speech in Glasgow:

     --Tenreyro said that the policy response to a no deal, no transition period

would depend on the balance of the impact on supply, demand and  the exchange

rate. "In my judgement, a situation where the negative demand effects outweigh

those other effects is more likely, which would necessitate a loosening in

policy. But it is easy to envisage other plausible scenarios requiring the

opposite response," she said.

     --Tenreyro made clear that under current conditions, with the UK hit by

Brexit uncertainty, tightening is unjustifiable. "The effect of that Brexit

uncertainty on demand has become increasingly evident in recent months," she

said. 

     --Brexit uncertainty has led to investment falling in the UK, business

confidence slumping and hiring intentions declining and it is finally starting

to impact consumers. "We are .. starting to see some signs of its effect on

households; the housing market is weakening; consumer confidence has

deteriorated," she said. "With inflation close to target, demand weakening and a

wide range of possible outcomes regarding EU withdrawal, I saw little case for a

policy change in our most recent meeting," she added.

     --She left the door open to gradual tightening if there is a deal with the

EU resulting in a smooth Brexit, but even in this case she said she would need

to see further evidence of rising domestic inflationary pressure. "Following a

smooth Brexit, sterling would be likely to appreciate. Potential supply will

also be able to continue on its recent path, free of any immediate constraints. 

     --A stronger pound and continued supply growth would both limit the extent

that a recovery in demand feeds through into inflationary pressures," she said.

"So while I still envisage that in the event of a smooth Brexit we will need a

small amount of tightening over the next three years, before voting for any rate

rises I would want to be confident that demand was growing faster than supply,"

she added.

     --Her speech looked into stripping out exchange rate and tariff effects on

price data to get a cleaner take on inflation pressure. She said such a measure

of domestic inflation would be key in determining her policy decisions.

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

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

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