LONDON, Feb 24 (Reuters) – Bank of England Governor Andrew Bailey and other top Bank officials spoke to parliament’s Treasury Committee on Wednesday.
The following are highlights:
EU ON BANK LOCATIONS
Bailey said post-Brexit moves by the European Union to require banks to justify why they are not moving activities away from Britain were of “dubious legality.”
“It would be very controversial in my view because legislating extra-territorially is controversial anyway and obviously of dubious legality, frankly.”
“And that would be very controversial, frankly. I think it would be a very serious escalation of the issue and I’m not going to obviously say how the government would react to that because that’s for the government to think about and we will work very closely with them on this but it would be a very serious escalation in my view of the issue.”
ON U.S. FISCAL PACKAGE
Bailey said he was not “worried about inflation in the U.S. No I think I’m confident that the Federal Reserve are a capable central bank actually”.
“We have quite a strong growth forecast for the U.S. for this year, or at least certainly when we did our forecast back in January, it was strong by comparison with others. The big question of course with the U.S. economy now going forwards is what the fiscal package ends up being. It is not agreed yet.”
“It will certainly contribute to global growth because the U.S. is obviously such a sizeable part of the global story. So there will be a spillover, a positive spillover, from that.”
Deputy Governor Ben Broadbent said: “There are two very big moving parts here, and quite when (the economy) returns to capacity is highly uncertain.
“On the one hand demand – the overall level of economic activity – is still materially, materially below where we were before the pandemic. And in the forecast it’s a year hence only that we get back to those levels.
“Now, the reason we haven’t seen a huge opening of spare capacity – we’ve seen some, but nothing like what you would have expected given that decline in aggregate GDP – is the furlough scheme, essentially, I mean that’s the biggest single reason.
“And one way of putting that is this is a temporarily withdraw of supply in the form of labour supply from the economy.
“But as we open up that supply comes back onstream.”
UK-EU TRADE DEAL
Asked if the Brexit trade deal had any inflationary or capacity impacts, Broadbent said: “On prices directly we don’t have much evidence, nor did we anticipate, a very strong effect. The most obvious effect would be that, to the extent that the foreign exchange market was attaching some weight to the possibility of no deal and I think that was true if only a small weight, before December.
“Then one would have expected and indeed we did see sterling appreciate because of the deal. All else equal one would expect that to have some depressive effects on inflation.
“It’s hard to say whether those frictions are having the opposite effect because prices are subject to all sorts of influences.”
Bank of England policymaker Gertjan Vlieghe said: “The thing that which is really uncertain is even once all these health restrictions and voluntary social distances, once they’re removed, then, does the economy by itself without any additional measures fully return to its pre-COVID trajectory? Does the labour market really fully return to full employment, or will it need some additional help? And that’s a much more difficult judgment. And in that respect I think that the risks are still slightly tilted to the downside.”
(Reporting by David Milliken, William Schomberg and Andy Bruce)