BoE's Saunders: Monetary policy cannot prevent necessary adjustment in economy to EU exit

Below are some key takeaways from the speech delivered by Michael Saunders, an external member of the Bank of England's MPC, at the CBI Annual Economic Dinner.

• Looking ahead, assuming the economy adjusts smoothly to an average of Brexit end states, economic growth is likely to continue to outpace potential.
• Assuming that smooth adjustment to Brexit, the MPC as a whole judge that some further rises in interest rates probably will be needed over time, in order to return to a more neutral policy stance and thereby keep inflation on target over time. 
• That assumption of a smooth Brexit adjustment is itself uncertain.
• Recent business surveys, including those by the CBI, suggest that Brexit uncertainties have caused a marked drop in business confidence so far in Q4.
• If there is a withdrawal agreement then the range of options for the possible Brexit end state also may narrow. 
• A smooth transition to a relatively close economic relationship with the EU would probably boost business confidence, with pent-up demand propelling investment and hiring.
• Conversely, an early move to WTO trading rules with no transition would probably see business confidence weaken, hitting investment and hiring. 
  • Sterling would probably depreciate, with the resultant boost to inflation reinforced by any extension of tariffs.
• The monetary policy implications could go in either direction. 
• Monetary policy cannot prevent the necessary adjustment in the economy to EU exit.