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By David Robinson
     LONDON (MNI) - The Bank of England is set to leave policy unchanged at its
meeting Dec. 20, as the U.K.'s highly uncertain progress towards Brexit obscures
the outlook for next year, and despite softening activity data.
     Yet, while the likely nine-to-zero Monetary Policy Committee vote appears
predictable, the minutes should offer insight into its views on the economic
     --Evidence Mounts Of Slowing Growth
     The MPC has taken the view that growth is likely to decelerate in the
fourth quarter as ephemeral factors that boosted activity at the start of Q3
fade. Bank economists at the end-October meeting projected Q4 quarter-on-quarter
growth of 0.3%, down from 0.6% in Q3.
     The question is whether growth is slowing even more rapidly than that.
August and September failed to record any increase on a month-on-month basis and
output was up just 0.1% in October.
     The November Services purchasing managers indices were, according to
compiler IHS Markit, compatible with just 0.1% growth in Q4.
     Placing greater weight on official data, the National Institute of Economic
and Social Research's latest estimate was for 0.4%, so the Bank economists could
stick with their 0.3% estimate. What should be enlightening is any MPC
commentary on whether the slowdown is expected to continue into the first
     --Budget Impact
     The minutes will contain the Bank's analysis of the likely demand side
boost from the Oct. 29 Budget, which came too late to factor into the MPC's
November forecast round.
     MPC member Michael Saunders told the Treasury Committee that the Budget
marked a switch from a projected 0.2% of GDP fiscal squeeze in 2019 to a 0.3%
loosening. The Office for Budget Responsibility assumed that that would add 0.3
percentage point to growth in 2019.
     --No Fresh Guidance On Post Brexit Policy
     The MPC's minutes are highly unlikely to provide further illumination
regarding the effect on monetary policy of the U.K.'s imminent departure from
the EU beyond their most recent phrasing: "The MPC judges that the monetary
policy response to Brexit, whatever form it takes, will not be automatic and
could be in either direction."
     The Bank's controversial Brexit scenarios, published at the behest of
parliament's Treasury Committee, showed Bank Rate spiking from its current 0.75%
to 5.5% in response to a disorderly Brexit.
     This scenario, however, simply reflected a mechanistic policy response to
inflation and output deviations relative to squeezed potential growth. The MPC
could, in reality, add stimulus if the supply shock lagged a demand one.
     Since the referendum in June 2016, Brexit uncertainty appears to have
retarded business investment and weighed on the currency, hitting the supply
side and fuelling imported inflation.
     Consumer demand has kept the economy ticking over, with a tight labour
market finally leading to a pick-up in real earnings growth. It is a moot point
whether, with savings stretched, consumer demand could withstand an adverse
Brexit shock.
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,MT$$$$,MX$$$$,M$$BE$]