Below are key takeaways from the report delivered to the Parliament’s Treasury Select Committee by Professor Silvana Tenreyro, an external member of the Bank of England’s Monetary Policy Committee.
- Domestic inflationary pressures had been weaker, which suggested to me that the output gap remained in negative territory.
- Although I continue to see upside risks to the MPC’s 1% forecast for potential productivity growth, I share the committee’s modal forecast for weaker supply growth than we were used to pre-crisis.
- Brexit aside, while my central forecast is that inflation will remain slightly above target.
- I think there are some downside risks; in particular, core services inflation might remain soft and unit labour costs might end up below our central forecast (either because pay does not grow as quickly as I expect, or because productivity recovers more strongly).
- As of now, I think it is prudent to let the effect of the last move sink in and continue monitoring the evolution of the economy.
- Going forward, how much further tightening is needed will depend on whether the economy evolves as in our forecast.
- The final shape Brexit takes could have a significant effect on the path of the economy.
- The appropriate monetary policy response to Brexit will depend on the reaction of households, companies and financial markets.
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