LONDON (Reuters) - Members of the Bank of England interest rate setting committee were speaking in parliament on Tuesday. They also supplied statements to the Treasury Committee. Below are some of their comments:
”I voted to maintain bank rate at a quarter percent. A majority of MPC members saw a case for removing some monetary stimulus in the coming months, I wasn’t in that majority. I mention that because I think that’s relevant to my assessment.
”All nine of us in September thought that the markets at that point were actually underpricing the number of rate rises over the forecast horizon, we sent that signal clearly.
“A majority of members felt that the degree of spare capacity was eroding sufficiently quickly that the trade-off between growth being below trend and high inflation, that that trade-off was diminishing, and so they included in the minutes the point about they saw the case for a removal of stimulus if these conditions continued in the coming months.”
“Bank rate remains the marginal instrument and there are good reasons for that, we understand how bank rate operates through many cycles, so that remains the marginal instrument, that was the guidance if you like that the MPC gave in September and the guidance that we gave two years ago ... that we won’t think about unwinding QE until bank rate can be materially cut from the level it’s reached and that’s a higher level from the level it’s at now.”
“The MPC has made very clear in the way it’s thinking about the economy ... is looking at the effects on demand, supply and from the exchange rate. I still think there is some slack in the economy, not a lot but still some slack in the economy.”
“Demand had been very weak in Q2, as I recall, business investment ... hadn’t risen, although subsequently it’s been revised up, consumption was weak, so the demand ... There were some signs of stronger demand in August but demand was pretty subdued.”
”Measures of domestically generated inflation are consistent with there still being some slack in the economy: they generally remain a little below levels consistent with the 2 percent target.
”Despite continued robust growth in employment there is no sign of second round effects onto wages from higher recent inflation. Earnings growth has seen some pick up when comparing the latest three months on the previous 3 months, but year-on-year growth is little changed of late.
“Inflation expectations appear well anchored, despite the sharp rise in headline inflation, which is evidence of the ongoing credibility of the Bank’s inflation target and remit.”
“The relationship between spare capacity and wages in the labor market seemed to me to be not that strong, in the past you would have expected the small degree of spare capacity we have to have triggered stronger wage growth but actually I think basic pay in the latest data that we have is about 2.1 percent ... so it’s picking up on shorter time horizons. And inflation expectations are anchored as far as we can tell, domestically generated inflation measures are consistent with the MPC’s inflation target.”
”If there were a loss of confidence in the UK ... in the markets you would see yields going up very sharply, you might well see exchange rate falling, you might well see bank rate having to rise.
”Once you start to be in that kind of world, you could have very significant fiscal consequences over and above the direct economic ones, because of the way that QE has operated.
“Looking ahead, were those kind of (confidence loss) risks to crystalise, as I said you can see the position reversing, which is why policy makers and advisers have to keep stressing why the UK has strong institutions, why it has a credible approach to policy across monetary, fiscal and financial and I do see that to be part of my role at the Bank of England along with other staff, just as it was at the Treasury.”
”But at the moment, when you look at gilts market, 10-year yields are about 1.3 percent so there are no signs of those fears emerging.
“We do have 10-year yields at about 1.3 percent which I always thought was a reasonable summary measure of how we are seen in the market.”
”Compared to other central banks, the Bank of England has relatively low capital. One key reason why the balance sheet has increased so much since its pre-crisis level of 7 percent of GDP is because of monetary and financial stability interventions like QE.
“The issue medium-term will be, in terms of where the balance sheet ends up, is the extent to which commercial banks wish to hold highly liquid assets ... wish to keep reserves at the Bank of England and the form they want to keep them in.”
“Companies are holding onto labor, it would seem, but there is not very much capital investment.”
“I see a real risk that as a result of the process of Brexit and the evolving uncertainties around it, business investment could turn out weaker than in the central forecast. If this were to happen then business investment growth would not necessarily compensate for sluggish consumption growth over the forecast.”
“I will watch with interest as the FOMC (Federal Open Market Committee) embarks on its program of gradual reduction of the Federal Reserve’s balance sheet, and seek to apply any lessons learned for our own operations.”
“Consumers surprised us with their resilience in the immediate aftermath of the referendum, and they may do the same again over the forecast horizon as the trough of the squeeze in real incomes passes.”
“Looking across a range of UK and overseas markets, including residential and commercial property markets, and equity and corporate debt markets, we can observe valuations that seem elevated relative to historical experience.”
“Over the fifteen months since the referendum it has become much more widely understood that the process of leaving the EU will be complex – with implications for the degree of uncertainty that businesses and households are going to have to cope with. There are signs that this uncertainty is now weighing on business activity.”
“Were developments in negotiations to give confidence that a deal could be struck and a disorderly exit avoided, it could buttress demand in the economy by reducing the probability attached to tail risks.”
“With my markets and banking responsibilities, I am particularly aware of the risk of dysfunction in key parts of the financial system, including the derivatives market. For example, if UK and EU banks lose their ability to perform regulated activities in each other’s markets, they may not be able to undertake actions which are not unusual in the lifecycle of a derivative, such as the exercise of an option or trade compression.”
Reporting by Kate Holton and Elisabeth O'Leary; editing by Estelle Shirbon