MNI STATE OF PLAY: BOE Policy On Hold; Outlook Weakens

By David Robinson and Jamie Satchi

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

unanimously to leave Bank Rate and asset purchases unchanged, even as it

downgraded near-term growth forecasts at a meeting ending Dec. 19 amid great

Brexit uncertainty.

     Following are key points from the minutes and policy announcement:

     -- Faced with evidence of a weakening near-term outlook and intensified

Brexit uncertainty the MPC offered no commentary on market rate expectations and

provided no fresh views on the policy outlook.

     The MPC simply noted that in November, when the quarterly Inflation Report

was published, it had said that if the economy developed as expected monetary

tightening would be appropriate "at a gradual pace and to a limited extent."

     --Bank economists lowered both their near-term growth and inflation

estimates.

     Bank staff predicted inflation would fall below the 2.0% target in the new

year, to stand at around 1.75% in January, and that it would stay under target

in the following months.

     They estimated that quarterly GDP growth would be just 0.2% in the fourth

quarter, down 0.1 percentage point from their November Inflation Report

forecast, and again around 0.2% in the first quarter.

     --While the near-term outlook has softened, the MPC judged that

domestic-generated inflation pressures continued to mount.

     A tight labour market is expected to feed through into an acceleration in

pay growth, with annual regular pay growth hitting 3.25% in the three months

through October.

     "The committee judged that the near term risks (on earnings) were slightly

to the upside," the minutes said.

     --The Brexit cloud hangs heavy over policy setting at present. The MPC

offered no update on its likely response to a hard, soft or no-deal Brexit but

the minutes noted that uncertainty had intensified and that a broad of sterling

assets had come under pressure.

     Options pricing indicated that "market participants viewed risks to the

exchange rate as more to the downside than the upside" and financial market UK

inflation expectations had increased in contrast to those in dollar and euro

instruments.

     --The big picture from the minutes is of the MPC adopting a neutral

approach to policy guidance while awaiting the Brexit outcome with the end March

deadline looming large.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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