November 1, 2018 / 12:47 PM / 19 days ago

HIGHLIGHTS-Bank of England's Carney speaks after leaving rates on hold

LONDON, Nov 1 (Reuters) - The Bank of England kept interest rates steady on Thursday and hinted at slightly faster future rate rises if Brexit goes smoothly, but warned all bets were off if next March brought a “disruptive” EU departure.

Below are comments from Bank of England Governor Mark Carney and other Monetary Policy Committee members:

Carney on no-deal Brexit:

“There would be a hit to supply, potentially fairly large and certainly more rapid than one is accustomed to in an advanced economy.”

“Since the nature of EU withdrawal is not known at present, and its impact on the balance of demand, supply and the exchange rate cannot be determined in advance, the monetary policy response will not be automatic and could be in either direction.”

“It will be a challenge, without question, and part of the series of judgements we will have to make, are exactly around what you’re pointing to, which is what’s temporary, what’s more persistent (in terms of no-deal Brexit effects) and then the relative balance of that.”

“There would be a need to distinguish between shorter term effects on supply that were caused by logistical challenges - very short and sharp transition challenges... - versus more structural effects on the supply capacity of the economy.”

“At a minimum there will be...a series of logistical challenges, of getting goods through the ports and the knock on effects of those to the ability a number of businesses to produce at full capacity.”

Carney on Brexit and banks:

“We feel quietly confident in the preparations of the banks and financial institutions in the United Kingdom, we’ve been focused on this for the course of the last couple of years.

Our view is that the banks are in a position, they have adequate capital, they have more than adequate liquidity, they have contingency plans, we have contingency plans that would buttress those contingency plans of the institutions.

“The outstanding issues for the financial sector are largely related to cross-border issues, so issues between the UK and the EU.”

Carney on Brexit and business:

“Business is taking a very cautious approach right now because we’re at the point of, if not maximum uncertainty, close to maximum uncertainty, and there’s not that much time left until there will be clarity so waiting a bit of time is understandable.”

Carney on economic adjustments:

“UK fiscal policy is shifting from a descriptive to a more accommodative stance.”

“The UK economy is in the process of adjusting to a new and as yet uncertain economic relationship with the EU, as has been the case since the referendum.”

Carney on Brexit volatility:

“As has been the case since the referendum, the MPC’s forecasts are conditioned on the assumption of a smooth transition to the average of a range of potential Brexit outcomes.

“As the deadline for concluding the Withdrawal Agreement approaches, the expectations of households and businesses are diverging somewhat from this base case assumption.

“In general, households are more sanguine, while businesses are more wary. These shifting expectations could lead to some greater-than-usual short-term volatility in the data.”

Carney on consumption:

“Momentum in household consumption appears to be greater than previously thought. UK households remain resilient to a Brexit that has not yet happened.”

Carney on investment levels:

“As the Brexit deadline looms, UK companies are now understandably postponing investment until they have greater clarity over the UK’s future trading relationship with the EU.”

Carney on economic outlook:

“The economic outlook depends significantly on the nature of EU withdrawal, in particular: the form of new trading arrangements between the EU and UK; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond. Whatever happens, monetary policy will act to ensure price stability, and subject to that, provide support for the economy during the transition.”

Carney on inflation:

“That curve leaves inflation a little above target in year 2 which is normally how we would think about the policy horizon, so one can draw conclusions from that.” (Reporting by the UK bureau)

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