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BoE on Brexit, sterling, jobs and exports: some key points

A speed read of the BoE’s Inflation Report. You’re welcome.

The key forecasts on growth and inflation are here. But among the other nuggets…

On Brexit:

It’s worth noting that projections are based on largely benign outcomes from the UK’s exit from the EU.

The MPC’s projections are conditioned on the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union. The projections also assume that, in the interim, households and companies base their decisions on the expectation of a smooth adjustment to that new trading relationship.

And a reminder (again) that the BoE is not a superhero:

Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years. Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth.

The UK is lagging:

Compared with those in the euro area and United States, risky assets in the United Kingdom have underperformed. An estimate of the risk premium on equities within the FTSE All-Share index is broadly unchanged from a year ago, in contrast to the falls in risk premia for other major global equity indices. Much of the rise in the FTSE All-Share index appears instead to have reflected a sharper rise in earnings expectations. In turn, that probably stems from the boost to the sterling value of foreign currency profits due to the depreciation, rather than a relatively greater improvement in their underlying earnings.

Sterling hurts, and that matters:

The 18% depreciation of sterling since November 2015 is raising UK import prices and weighing on household real income growth. The pace at which households moderate their spending in response will be a key determinant of the outlook for overall GDP growth.

And in relation to the labour market, it adds an intriguing note:

The loss in real income as a result of the depreciation in sterling may lead to some people wanting to work longer hours to make up that loss.

Nonetheless, there are positives for exporters:

The stronger global outlook, together with increased incentives for exporters to expand or renew export capacity to take advantage of the lower pound, supports UK investment over the forecast period. One feature of growth over this year has been a recovery in investment spending in the United States and euro area. That has been seen to a lesser degree in UK business investment data and intentions surveys. There is evidence that global factors have played an important role in UK investment in the past and the world forecast implies that they are likely to support investment here for much of the forecast period too.

Private-sector forecasters are more cautious on growth:

(Charts: BoE)