**MNI 5 Things: BOE "Shouldn't Dally" Over Rate Tightening

--Five We Learnt From BOE MPC McCafferty Reuters Interview

By David Robinson

     **LONDON (MNI) - Bank of England Monetary Policy Committee (MPC) member Ian

McCafferty gave an interview to Reuters which was published Tuesday. 

     Here are five things we learnt:

     1) McCafferty does not believe the apparent softness in some of the recent

data is a game changer when it comes to tightening policy. He was one of the two

MPC members who voted against leaving Bank Rate on hold at 0.5% in March,

instead backing a 25 basis point hike. He told Reuters that there had been no

data or Brexit related events to make him think his March rate call was wrong.

     2) While policymakers are never certain about future policy decisions

absent a severe shock McCafferty is nailed-on to back a 25 basis point hike at

May's MPC meeting. "We shouldn't dally when it comes to tightening policy

modestly," he said.

     3) Rather than arguing that the May inflation forecast may have to be

lowered, as some analysts assumed, McCafferty instead cited upside risks to the

February forecast. McCafferty's core argument for tightening centre on the

labour market, as he believes that there is likely no slack left and employers

are having to raise wages to entice new employees, pushing up on pay growth.

With some upward effects from sterling weakness still to filter through

McCafferty said that there were modest upside risks to the MPC's inflation

projections. The February one already showed inflation holding above target

throughout the three year forecast horizon.

     4) On the question of whether the MPC would improve policy communication by

publishing members' individual or collective rate projections McCafferty is a

traditionalist.  The MPC issues projections based on unchanged policy and

implied market rates and McCafferty reheated the view that if they switched to

publishing rate projections that could mislead people who would view them as

certainties, rather than conditional forecasts. "My worry ... has been that when

we make a forecast it is taken as absolute certainty, gospel truth," he said.

     5) There has been no commentary from MPC members since the March meeting to

undermine the view that a May hike is on the cards, and McCafferty's comments

just reinforce this belief. Chief Economist Andy Haldane and Deputy Governor Ben

Broadbent both have speeches scheduled for this week. If anyone does want to

disturb the assumption that a hike is coming next month they are going to have

to come out pretty soon and say something.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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