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By David Robinson
     LONDON (MNI) - The Bank of England Monetary Policy Committee will leave
policy on hold at next week's meeting but that this would only mark a brief
pause in tightening, the National Institute of Economic and Social Research
(NIESR) said Friday.
     NIESR forecast that the next 25 basis point hike in Bank Rate, currently at
0.5%, would come in August and that it would rise at the pace of one 25 point
increase per quarter to stand at 2.0% by end 2020. Financial markets are no
longer pricing in a May hike, but it is a moot point how long tightening will be
delayed, with some analysts forecasting no increase until the first quarter of
2019. 
     The official data have shown the UK economy going through a soft patch. The
initial estimate of first quarter GDP came in at up just 0.1% on the quarter,
much weaker than both NIESR and the Bank had predicted. 
     --UK GDP FORECAST LOWERED
     NIESR does not expect economic growth to spring back and promptly make up
the lost ground. It cut its 2018 UK growth forecast to 1.4% from 1.9%.
     The MPC will post its updated quarterly forecasts next Thursday. In
February it forecast 2018 UK growth at 1.8% but it would be surprising if it too
did not cut its growth forecast for this year.
     Amit Kara, who heads NIESR's UK forecasting team, said that a key question
was whether the UK was going through a soft patch of if the slowdown was going
to be more prolonged.
     The activity surveys for the start of the second quarter have not shown any
strong rebound in growth, with Markit's All-Sector Purchasing Managers Index
published Thursday showing economic activity picking up in April from a snow hit
March but still posting the third-lowest reading since the June 2016 EU
referendum. 
     Without the supporting data to suggest a snap back in growth, the majority
on the MPC are expected to argue against immediate tightening. The latest
inflation data have also come in weaker than the MPC expected.
     NIESR, assuming Bank Rate rises in line with its forecast, forecast CPI
would come in at 2.1% on the year in the fourth quarter of 2018. It then
forecast that it would hold steady at 2.0% in Q4 2019 and 2020, bang-in-line
with the target set for the MPC.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
[TOPICS: M$B$$$,M$E$$$,M$$BE$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com