MNI REVIEW: BOE MPC Opens Door To Policy Easing

--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$]