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Twisting Flatter, Issuance Matters Eyed

MNI (London)
By David Robinson
     LONDON (MNI) - The Bank of England is set to leave policy unchanged
Thursday, with the focus on its interpretation of the global slowdown and
whether it sheds any fresh light on its likely policy response to potential
Brexit developments.
     By linking the global slowdown to policy guidance, the BOE's Monetary
Policy Committee could tilt against gradual tightening if there is a Brexit
deal. It is likely to remain non-committal on policy direction in the event of
no-deal.
Key things to watch out for from the minutes are:
     --The MPC's collective line has been that the policy response to Brexit
"whatever form it took, would not be automatic and could be in either
direction," and it would be a shock if it went beyond this at its September
meeting. The furthest the MPC could go is would be to weight the likely response
by stating that policy easing would be more likely than tightening if there is
no deal, but some members of the committee have repeatedly declined to endorse
this line.
     That easing is the likely response to no deal is the stated view of Carney
and independent members Gertjan Vlieghe and Silvana Tenreyro but to date, other
members of the nine strong MPC have not endorsed it and it is hard to see why
they would shift position now and agree a common line.
     --Chief Economist Andy Haldane has spearheaded the case against tilting to
easing, repeatedly highlighted the gulf between the current economic situation
and the one in the summer of 2016, when the MPC added stimulus in response to
the Brexit vote.
     Wage growth has risen to touch 4%, unemployment is below the Bank estimate
of the equilibrium rate and as much of the world suffers from "low-flation"
lowered inflation expectations, those in the UK have been pretty steady, Haldane
has noted.
     Deputy Governors Ben Broadbent and Dave Ramsden have been similarly
sceptical about tilting towards easing on no deal.
     --The MPC is likely again to qualify its guidance that in the event of a
smooth Brexit "increases in interest rates, at a gradual pace and to a limited
extent, would be appropriate" by making reference to the global slowdown. In
August, gradual tightening was predicated on "some recovery in global growth"
and a reprise of this, or a similar, line is likely this month.
     The minutes are likely to make reference to some of the factors which could
push back against tightening.
     --The minutes are unlikely to shed any light on another hot topic -- what
the MPC could include in a stimulus package if there is no deal. The regular
policy meetings are centred on an assessment of how the economy is developing
relative to the Bank's projections and whether tightening or easing is required.
The ongoing work on which policy tools could used if further easing is required,
and how effective they would be, is carried out away from the MPC regular,
minuted meetings.
     --Questions over whether the MPC could restart the Term Funding Scheme or
buy other non-gilt assets is not likely to appear in the monthly minutes.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$B$$$,M$E$$$,MT$$$$,MX$$$$,M$$BE$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com