HIGHLIGHTS-BoE press conference: Don't get carried away by recovery

suggests that many firms are adjusting to the new arrangements. "It remains too early to judge whether the effects, both in terms of the short-term disruption and the longer-term effects on supply growth are in line with the assumptions underlying the MPC's forecasts.

The Bank of England said it would slow the pace of its bond-buying as it sharply increased its forecast for Britain's economic growth this year after its coronavirus slump, but it stressed it was not tightening monetary policy. Below are quotes from the Bank's press conference:

GOVERNOR ANDREW BAILEY ON THE SCALE OF THE HIT "However (...) let's not get carried away. It takes us back by the end of this year to the level of output that we had essentially at the end of 2019 pre COVID.

"So that is good news in the context of where we've been, but it still means of course you know another way of expressing that is that two years of output growth have been lost to date." BAILEY ON GDP PROJECTION:

"On balance, the MPC judges the risks to the central projection for GDP to be skewed to the downside in the first year of the forecast period, but broadly balanced further out." BAILEY ON INFLATION FACTORS

"The key judgement for people obviously is will it persist, obviously inflation becomes much more difficult in that context, and our judgement at the moment, as the forecast sets out, is that we don't see that happening, we don't see that there is any good line of argument which says those base effects are going to translate into embedded inflation. "Obviously there have been what I would call some straws in the wind over the last quarter of a slightly different nature which is a variety of trade effects, we've got a few things going on around the world, we've got a shortage of micro chips, we've had a blockage in the Suez canal, all of these things have caused import prices to move quite a bit but we're not seeing it come through into output prices.

"Our agents, who have their ear to the ground ..., say they're not seeing that at the moment but we're going to have to watch this very carefully as the economy opens up... It's one of the things we have to keep a very close eye on. BAILEY ON INFLATION EXPECTATIONS:

"We do watch them very closely (5 year inflation expectations) I would say if you standback and look at the overall movement of markets since the last report we've seen actually a larger movement in what we call real rates which of course reflects expectations of growth and some pick-up in inflation components, that's true actually across major economies. "Put into a longer run context I would say that is not certainly something at all, it's not at all alarming actually. I wouldn't want to in any sense endorse that. It's a point of note and something we watch carefully continually."

BAILEY ON BREXIT: "Early evidence .. suggests that many firms are adjusting to the new arrangements.

"It remains too early to judge whether the effects, both in terms of the short-term disruption and the longer-term effects on supply growth are in line with the assumptions underlying the MPC's forecasts. "The MPC has retained its assumption that trade and activity will be lower in the first half of this year as firms adjust to the introduction of new trading arrangements. These additional effects on trade are assumed to dissipate by the end of this quarter."

BAILEY ON LABOUR SUPPLY: "It's something we also keep a very close watch on, and our agents do, on this question of labour supply."

DEPUTY GOVERNOR BROADBENT ON INVESTMENT: "(The investment tax credit) to some degree has the effect of bringing forward investment that would have taken place later and that too gives you this kind of hump shaped effect of fiscal policy."

BROADBENT ON AVERAGE WEEKLY EARNINGS: "We're going to get very strong readings for AWE growth in the next two months, but that won't really tell you about underlying wage growth and we would expect later in the year those AWE growth numbers to fall back because the recovery will be concentrated, the employment recovery will be concentrated, in low wage jobs, in other words we'll see some of the compositional shifts in the last year being reversed.

"So obviously we will try and we will do our best to read what's going on with underlying wage pressure, it's just a warning that the headline numbers will continue to be distorted by these effects for some time to come." BROADBENT ON WORKERS:

"Essentially what's happened in this forecast relative to February is that more of the people who were on furlough and who might have been eventually employed but only after a period of unemployment, more of those people were able to go directly back into employment. And that's why you get such a big difference in the unemployment profile." "You know we still think there's spare capacity in the labour market and there will be for much of this year."

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