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MNI POLICY: Tenreyro Inclined To Back Cut On Downside Risks

--Tenreyro Says Risks To Downside
--Inclined To Back Cut If Downside Risks Materialise
By David Robinson
     LONDON (MNI) - Bank of England Monetary Policy Committee member Silvana
Tenreyro said she was inclined to back a rate cut if downside risks to the
Bank's central economic projections materialised.
     Speaking at a Resolution Foundation event, Tenreyro said risks to the BOE
most recent forecasts, in November, were tilted to the downside and that there
were signs the labour market had peaked.
     She was one of seven MPC members who voted for unchanged policy at the
December meeting, with two backing a hike.
     Following are key points from Tenreyro's remarks:
     --Tenreyro noted that the Bank's November forecast had assumed a recovery
in demand growth relative to supply growth and that its central projection was
conditioned on the assumption that the UK moves to a deep free trade agreement
with the EU in 2020.
     "The risks to those assumptions are largely to the downside and if
uncertainty over the future trading arrangement or subdued global growth
continue to weigh on UK demand then my inclination is towards voting for a cut
in Bank Rate," she said.
     --Asked what she would look at to determine if downside risks were
materialising, she highlighted the importance of surveys of business and
     "A key thing for the decision is how uncertainty unwinds going forward,"
she said.
     "We will be watching very closely how firms, businesses and households
respond to Brexit developments."
     --Judged by stock measures, including employment and participation rates,
the labour market was very tight and, given the fundamentals, there is full
     But she said "flow measures indicate that the labour market is not
tightening any further."
     "Vacancies are at very high levels but they have been falling, employment
growth has slowed" and job churn has cooled
     "This behaviour of flows is to be expected. When you reach a peak of a
market, or close to full employment, the next movement is necessarily
downwards," or at best sideways, she said.
     --Tenreyro delivered a nuanced view on the policy outlook.
     There "were some reasons to be optimistic," including the reduction of
Brexit uncertainty, with the chance of an imminent no deal exit almost
eliminated, which meant companies had to spend less time on Brexit preparations.
     Conditions were more favourable for investment with uncertainty declining,
she said.
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,MT$$$$,M$$BE$]

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