MNI REVIEW: BOE Leaves Policy On Hold; Sees Q2 GDP Flat>

     LONDON (MNI) - The Bank of England Monetary Policy Committee (MPC) 

was united in leaving Bank Rate and asset purchases unchanged at its 

June meeting, while offering no guidance on the likelihood of a near 

term hike. 

      The following are key points from the minutes and policy decision:

     -The BOE projections are conditioned on a smooth Brexit with a 

transition period leading to an average of end states, and in the 

minutes the MPC acknowledged that this creates a tension with gloomier 

market forecasts, which place greater weight on a no deal Brexit. 

      "Domestically, the perceived likelihood of a no deal Brexit has 

risen," the MPC said.

      It said that this apparent increase in the likelihood of no deal 

had put further downward pressure on UK interest rate expectations, with 

markets now pricing in no rate hike through 2020.

     -The MPC did not make any direct comment on market rate 

expectations. The committee explicitly acknowlegedged its forecasts 

are not directly comparable with market ones, because of Brexit, and it 

is not commenting on whether the markets are wrong or right. 

     -Near term growth is set to be weaker than previously forecast, 

with Bank economists now forecasting flat growth in Q2 on the quarter, 

down from the 0.2% previously asssumed.

     -Near term slightly more slack is set to open up in the economy, 

but the MPC sees a return to above trend growth further down the line, 

conditioned on its smooth Brexit assumption.

     -There was a detailed discussion about UK inflation expectations, 

with five year/five year market expectations having risen. 

     The MPC noted, however, that short-term inflation expectations 

played a greater role in wage and price setting and that these were 

still relatively well anchored on the 2% inflation forecast.

     -The minutes overall are likely to do nothing to fuel speculation 

over near-term tightening, with no-one setting out the case for an 

immediate hike. 

 --London newsroom: e-mail:david.robinson@marketnews.com

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