MNI BOE PREVIEW: Tough To Signal Tightening W/out Fresh Votes

--MPC Faces Tricky Challenge To Signal Tightening Ahead If Only 2 Hike Votes

By David Robinson

     LONDON (MNI)- - The Bank of England Monetary Policy Committee, at this

week's meeting, will face a tricky challenge if it wants to come up with a line

to persuade markets that it is serious about tightening if there are no fresh

votes for a Bank Rate hike.

     At the August MPC meeting, two members voted for a hike and analysts

surveyed by Market News International were united in the belief that only these

same two members, Ian McCafferty and Michael Saunders, will vote for tightening

this time around. 

     The MPC deployed a line in the August minutes that markets may be

underestimating the total amount of tightening required, but that failed to push

up market interest rate expectations and it will need something more specific

this week.

     The simplest way for the MPC to rock market expectations while leaving

policy unchanged would be to announce that three, or even four, of its members

had backed a 25 basis point hike.

     Dave Ramsden is a wild card as this will be his first vote on the MPC

following his appointment as Deputy Governor for Markets and Banking. Unlike

other newcomers to the MPC, Ramsden, a top Treasury official, will not need any

time to find his feet.

     As the Treasury representative he was attending MPC meetings back in 2007

before the global financial crisis even started and he has clocked up more

meetings than any of his MPC colleagues. 

     Ramsden has all the inside information on the UK's unconventional monetary

policy, which has been a joint BOE/Treasury exercise, with the Treasury now

guaranteeing an estimated 95% of the Bank's assets and credit supply

initiatives, such as the Funding for Lending, developed by both institutions.

     Ramsden's first public appearance since joining the Bank is likely to be

his confirmation hearing at the Treasury Select Committee, but there is nothing

to stop him breaking with the majority at his first meeting before saying

anything in public.

     Another MPC member who could back a hike is Chief Economist Andrew Haldane.

In June, Haldane gave a speech in Bradford at which he said "beginning the

process of withdrawing some of the incremental stimulus provided last August

would be prudent moving into the second half of the year."

     He did not follow through in August but with inflation rising, with the

headline consumer price index hitting 2.9% in August, up from 2.6% in July and

signs that growth, while weak by historic standards is holding up, Haldane could

back an increase.

     In the expected scenario that there is no change in the MPC vote, then the

focus will be squarely on the MPC's communication.

     Allan Monks, economist at JP Morgan, noted that expectations have been

building that the Bank "will turn up the dial on its hawkish rhetoric" to try

and convince markets there could be a rate hike in the none too distant future.

     The tricky part for the Bank is what it could say to get markets to take

the prospect of a rate hike seriously when additional members are not voting for

it.

     The August minutes contained the wordy formulation that "if the economy

were to follow a path broadly consistent with the August central projection,

then monetary policy could need to be tightened by a somewhat greater extent

over the forecast period than the path implied by the yield curve."

     Yield curves flattened after the August minutes, with that line appearing

impotent. The MPC could sharpen it up by changing the wording.

     The committee could replace "a somewhat greater extent" with something

punchier, such as "a significantly greater extent" or it could introduce a time

element, and state that policy may need to be tightened by earlier, and more,

than implied by the yield curve.

     BOE Governor Mark Carney will be wary of saying much about timing.

     Carney talked about the decision over hiking rates coming "into sharper

relief around the turn of the year" in a speech back in the summer of 2015 and

Bank Rate has fallen since then from 0.5% to 0.25%.

     The Bank Governor found himself being compared to "an unreliable boyfriend"

by a lawmaker for his pains in offering conditional guidance and he runs the

risk of being ignored by markets if he proffers anything similar this time

around.

     The divisions on the MPC, with Haldane highlighting the risk of the MPC

moving too late and Gertjan Vlieghe saying "a premature hike would be a bigger

mistake than one that turns out to be slightly late," will intensify the

committee's difficulties in coming up with a meaningful, agreed policy statement

after its September meeting.

     The minutes and policy decision will be announced at 1100 GMT Thursday.

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

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