MNI ANALYSIS: BOE MPC Seen On Hold, Insiders Back Status Quo

--BOE MPC Insiders Expected To Deliver Unchanged Policy

--Inflation Report To Show Softer Growth Forecast

By David Robinson and Jai Lakhani

     LONDON (MNI) - The five Bank of England insiders on the nine member

Monetary Policy Committee (MPC) are expected to be in the majority backing the

status quo at the May meeting, extending a trend of insiders not registering

hawkish dissents that has been in place since the start of 2014.

     The MPC comprises five top ranking BOE officials and four externals, with

the latter appointed by the Treasury and, at least notionally, working

part-time. MNI analysis highlights the divergence between the two groups' voting

patterns. 

     A survey by MNI found the bulk of analysts expected a seven-to-two vote in

favour of unchanged policy at this month's meeting, with two external members,

Ian McCafferty and Michael Saunders again expected to break ranks to vote for a

25 basis point hike. 

     If another external were to join those two, or one or other of them were to

back down, it would be a minor surprise. But an insider voting with the minority

for a hike would buck a long-running trend trend.

     Former MPC member Kristin Forbes, in her farewell speech on June 22 2017,

explored this insider/outsider voting split, noting that the pattern of insiders

voting as a bloc against tightening became evident after 2013.  

     --INSIDERS IN-LINE

     MNI brought her figures up to date and found that from 2014 onwards, on

Bank Rate alone, MPC members have cast 402 votes, of which 30 were non-consensus

votes, 7.46% of all votes cast. MPC members that dissented and voted for a

higher rate than the outcome stood at 6.72%, compared to 0.75% of MPC members

dissenting and voting for a lower rate than the outcome.

     Just two dissents since 2013, 0.5% of the total, have come from internal

members. Those two votes occurred when Deputy Governors Jon Cunliffe and Dave

Ramsden voted against the November 2017 hike.

     What is particularly striking is that there have been 27 dissenting votes

for a higher Bank Rate than the outturn since 2013 but not one of these vote has

come from the insiders. The repeat pattern has been one where an external or two

votes for a higher rate but, with the exception of last November, the internals

deliver the status quo.

     Michael McMahon, a professor at Oxford and visiting scholar at the Bank,

has carried out research into the MPC's voting patterns and the insider/outside

split and in one paper he stated "the internal members display activism in the

sense of having distaste for changing interest rates."

     McMahon told MNI that he maintained that there has been "relatively little

disagreement in the last nine years."

     One caveat is that it has been hard to assess MPC members average policy

position in a large portion of the recent history because of the general

agreement that interest rates did not need to move -- with the policy rate stuck

at what the committee deemed was the effective zero lower bound (ZLB).

     -LOWER GROWTH FORECAST

     The May MPC minutes will be published alongside the quarterly Inflation

Report. It is highly likely the Bank's 2018 UK growth forecast will be cut as a

result of the unexpectedly weak 0.1% quarter-on-quarter rise in GDP in the first

quarter.

     By MNI calculations, if the MPC took that outturn at face value it would

require quarterly growth of around 0.75% per quarter for the economy expand in

2018 in line with the MPC's February forecast of 1.8%.

     While the Bank economists back-cast may well push up first quarter growth,

to say 0.2% or 0.3%, it would still require a sharper acceleration than the MPC

is likely to be comfortable forecasting to get 2018 GDP back on track, with

early data for Q2 pointing to subdued growth rather than any snapback.

     With sterling on its effective exchange rate index little changed from

February, up just 0.79% the inflation profile is likely to be at a touch softer

due to weaker growth, but with CPI shown over the 2.0% through the three year

forecast it would still support further tightening.

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

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$B$$$,M$E$$$,M$$BE$]