Bank of England Governor Mark Carney and other top monetary policy officials from the central bank were speaking to the Treasury Committee in Britain’s parliament on Tuesday.
Below is a selection of their comments.
CARNEY ON TRANSITION
“If the implementation agreement doesn’t come to pass for whatever reason, there would be a potentially considerable real economy adjustment.”
CARNEY ON BREXIT
“The forecast on the eve of the referendum, which was predicated on a vote to remain (…) and was predicated on a relatively weak European and global economy.
“If you look at where the economy is today, relative to that forecast, it’s more than 1 percent below where it was despite very large stimulus provided by the Bank of England, a fiscal easing by the government and global and European economies, which are much much stronger than they were previously.
“If you adjust for those factors, the economy is about one and three-quarters – one and half, one and three-quarters, up to two percent lower than it would have been.”
CARNEY ON INVESTMENT
“Actually, with clarity, that ultimately comes, big long-term decisions that are taken about the relationships with Europe, that business will then use those clean balance sheets, access financing, and start to put capital to work, and then we’d see a sharp pick up in business investment.”
CARNEY ON RATE EXPECTATIONS
“If you look at survey evidence of households and businesses over the course of this year, including today, the most recent household survey came out yesterday, more than three quarters of households expect rate increases over the course of the balance of this year and then to proceed at a very gentle pace relative to history.”
CARNEY ON FIRST-QUARTER GROWTH
“Our view is not that circumstances changed in the first quarter, it’s more likely to have been temporary and idiosyncratic factors that slowed the economy.”
“We don’t think much of that lost output (from Q1) is going to be made up so that’s one of the reasons why we have a 0.4 forecast for the second quarter.”
CARNEY ON VOLATILITY
“To put this all into context, interest rate volatility today in short term markets is very, very, very low relative to history. And it’s very low relative to the degree of economic uncertainty.”
CARNEY ON RATE PATH
“In terms of the question on the path, publishing the path, we had a rigorous discussion of this as a committee, the consensus of the committee or the majority of the committee were not in favor of publishing a path, but it was the right question to ask.
“There were arguments for and arguments against. I think the risk of it being interpreted as a promise, as a commitment are real, there are risks of procrastination once you put a path out there… there’s risk of pre-commitment as well, you’ve got a path you feel more obliged for reasons of credibility to follow it through.”
CARNEY ON THE INCOME SQUEEZE
“The downside risk is whether UK households decide to make up for the reduction in savings that they’ve had for the last couple of years as they’ve had this real income squeeze.
“So real income squeeze just starting to come to an end; wages growing faster than inflation. We do expect consumption growth to grow in line with that wage growth, but it’s possible that they’ll make up for some lost ground.”
DAVE RAMSDEN ON GUIDANCE
“I prefer for our communications to be relative to how we see the economy developing going back to our remit, and I do think, as I think Jan recognized this morning, there is also a cost, a real risk which I’d put more emphasis on than Jan that things get lost in translation, that forecasts of interest rate are predicted to be are seen as promises…that would be my worry if we went down the rate path course.”
MICHAEL SAUNDERS ON A NEUTRAL RATE
“One area where it might be useful to do more is to talk about where a neutral level of interest rates is. At the moment I think policy is providing stimulus. If spare capacity gets used up then it is likely over time we’d want to move to a more neutral rate.
“I think the neutral rate is significantly lower than it used to be. And I think that trying to flesh that out – to talk a bit about where a neutral rate might be – I think actually would be a useful thing.”
SAUNDERS ON LABOUR MARKET
“I don’t think that the UK labor market is currently tighter than we expect. I suspect that going forward the labor market will tighten further, with the jobless rate continuing to fall. I stress, I don’t think the labor market has yet overheated.”
SAUNDERS ON Q1 OUTPUT
“I differed from the majority in two areas. First I put more weight on the view that the weakness in Q1 GDP reported by the ONS is either erratic as a side effect of the weather or possibly may be revised away.”
“I suspect that the jobless rate will fall a little further than our base case over time.”
BOE’S GERTJAN VLIEGHE ON RATE RISES
“My current forecast for growth and inflation is consistent with a gradually rising path of interest rates. My own central projection will require one or two quarter point rate increases per year over the three-year forecast period.”
BOE’S VLIEGHE ON TRADE WARS
“The risk scenario is one where there is significant broadening of the scope of tariffs across a wider range of goods, and/or a broadening of the set of countries that implement the tariffs, for example to include the EU.
“That could lead to a slowdown in global trade that can hurt the UK economy by several tenths of a per cent of GDP or more.”
BOE’S VLIEGHE ON MPC DIFFERENCES
“At the moment, there are no material differences between my forecast for the economy and the MPC’s collective view as published in the May Inflation Report.”