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Key Near-Term Resistance Exposed


(U1) Extends Gains

--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
     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.  
     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).
     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
     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:
--MNI London Bureau; +44 203 865 3828; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
[TOPICS: M$B$$$,M$E$$$,M$$BE$]
MNI London Bureau | +44 203-865-3812 |