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Toeing The Line on Accelerated Taper

--Two of Nine MPC Members Voted For Rate Cut At Nov Meeting
By David Robinson and Irene Prihoda
     LONDON (MNI) - The Bank of England Monetary Policy Committee took a step
down the path to policy easing at its November meeting, with two members voting
for a rate cut and the Monetary Policy Report (MPR) showing weak near-term
growth and subdued inflation pressure.
     The BOE analysis found evidence of a softening labour market and the risks
to its growth projections were assumed to be to the downside. Against this
backdrop both MPC members Michael Saunders and Jonathan Haskel voted for an
immediate 25-basis-point cut, with BOE Governor Mark Carney setting out the
criteria under which easing would be justified.
     Following are key points from the press conference, and from the Monetary
Policy Report and minutes:
     --Carney saw a case for policy easing if the assumptions underpinning the
MPC's central forecast did not crystallise.
     The central forecast was conditioned on stabilisation in global growth and
on the adoption of a Brexit deal struck by Prime Minister Boris Johnson for a
free trade deal with the European Union.
     "If global growth fails to stabilise or if Brexit uncertainties remain
entrenched, monetary policy may need to reinforce the expected recovery in UK
GDP growth and inflation," Carney said.
     However he said that if events do play out in line with the MPC's central
projections, the committee's collective view was still that limited tightening
would be justified.
     --DOWNSIDE RISKS
     --The BOE's detailed analysis highlighted the mounting obstacles to UK
recovery.
     The MPC said that the risks to the growth forecast lie to the downside for
the next couple of years and the committee found evidence that the labour market
has turned.
     "Employment growth has slowed and pay growth is likely to fall back in the
near term," the MPC said in its Monetary Policy Summary.
     The MPC's projections showed the jobless rate edging up to 4.0% in 2020
from 3.9% at the end of this year.
     --On a constant rate assumption, inflation was shown holding below the 2.0%
target until Q2 2022, and reaching 2.0% in Q3 2021 on the assumption of one
25-basis-point cut next year.
     These forecasts suggest than any materialisation of downside risks could be
enough to tilt the scales to easing.
     --The MPC now assumes that rather than the output gap will remain negative
through 2020, with growth below potential, rather than turning positive near
term.
     According to the MPR, a negative output gap of 0.25% of GDP opens up in
2019 and persists through 2020 before turning positive in 2021.
     As MPC member Gertjan Vlieghe said in a speech last month, an increase in
the economy's slack tilts the scales away from tightening towards easing.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$B$$$,M$E$$$,MT$$$$,MX$$$$,M$$BE$]