BoE MPC member Gertjan Vlieghe said in a speech that the net balance of economic news for the UK has been to the “downside”. Thus, the appropriate pace of monetary tightening is “somewhat slower” than he judged a year ago.
A quarter point hike per year is a “reasonable central case” if global growth does not slow materially further, path to Brexit is in line with government’s state objective, and pay growth continues at current pace. Though, if a no-deal Brexit is avoided, he expects Sterling to appreciate. And the exact degree of future monetary tightening will depend on appreciation of the Pound.
However, a no-deal outcome is “likely to lead to some economic disruption, which could possibly be severe”. There are some paths that are possible, but “not all are equally likely”. In his view, “an easing or an extended pause in monetary policy is more likely to be the appropriate policy response than a tightening.” But he emphasized that BoE will have to “judge in real time” how well inflation expectations remain anchored, and how households and businesses are reacting to the disruptions.
Vlieghe’s full speech “The Economic Outlook: Fading global tailwinds, intensifying Brexit headwinds“.
