Questions for Carney as U.K. Economy Defies Brexit-Vote Gloom

BOE Unlikely to Cut Rates in November, Says Owen
  • BOE governor appears before lawmakers at 2:15 p.m. London time
  • Cunliffe, Forbes, Vlieghe will also testify to Treasury panel

Here are some things to watch for as Mark Carney appears before lawmakers on Wednesday.

Get set for some fiery exchanges from 2:15 p.m. in London, when the Bank of England governor testifies for the first time since Britain voted to quit the European Union. Pro-Brexit Jacob Rees-Mogg will probably lead the charge, after accusing the central bank of unleashing its August stimulus, including a rate cut, without sufficient evidence.

Carney and three colleagues -- his deputy, Jon Cunliffe, as well as officials Gertjan Vlieghe and Kristin Forbes -- will probably face questions on whether they’re reconsidering their assessment of the economy and what that could mean for policy. While sentiment measures slumped immediately after the June referendum, they’ve since rebounded, sending Citigroup’s index of economic surprises to the most positive level in three years.

In its last set of official projections published alongside the August decision, the BOE predicted slower growth, faster inflation and rising unemployment. A report Wednesday showed U.K. manufacturers cut production in July. While much depends on how the outlook evolves relative to the central bank’s projection for 0.1 percent growth in the third quarter, the Office for National Statistics won’t publish its first take on how the economy fared until Oct. 27.

Minutes from the BOE’s last meeting showed most policy makers expected to “support a further cut in the bank rate” later this year should the data evolve as they predict. The Treasury Committee may want to know if that still stands. Traders now see a 27 percent probability of a reduction by the BOE’s December meeting, down from almost 40 percent after the last decision.

Carney has made it clear he won’t consider cutting rates below zero, begging the question of where the lower bound lies. The August Inflation Report projections were based on market expectations for the rate to fall to 0.1 percent and stay there until the third quarter of 2018, but some economists see it going even lower. With both savers and banks struggling to find returns, lawmakers may seek clarification.

Purchases of government debt are also likely to come under scrutiny, after the central bank failed to get enough offers of gilts to meet its target at one operation and paid a premium over the average market rate at some. With the central bank already owning around one-third of the gilt market and funds reluctant to part with longer-dated gilts, that’s raised questions about the design of the program and whether it could have been more effective.

Not all of the nine-member Monetary Policy Committee supported the expansion of QE. Forbes, was one of three who voted against increasing the asset-buying target, saying the initial surveys may have overstated economic weakness. She also opposed the plan to buy corporate debt. Lawmakers may want to ask her if she felt backed into a corner by Carney’s public declaration on June 30 -- just a week after the Brexit vote -- that easing would probably be needed.

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