MNI POLICY: BOE: Policy Steady, No Dissents, Inflation Rising>

--Votes 9-0 For Unchanged Policy And Asset Purchases; No Disseting Views

--BOE Projections On One 25bps Hike In 3yrs Show Clear CPI Overshoot

     By David Robinson and Irene Prihoda

     LONDON (MNI) - The Bank of England Monetary Policy Committee voted 

nine-to-zero to leave policy unchanged at its May meeeting, with the 

Inflation Report projections showing inflation overshooting the 2.0% 

target on the assumption of a single 25 basis point hike in three years.

    The following are key points from the BOE MPC minutes, Inflation 

Report and policy decision:

    -The minutes confounded market speculation that there would be at 

least one dissenting vote for a hike, or that there would be dissenting 

views in the minutes with one or more members setting out the case for 

early tightening.

     Not only did the minutes reveal a nine-to-zero vote for unchanged 

policy but no-one outlined a case for early tightening, with the MPC 

comfortable sitting tight for now. "The cost of waiting for further 

information was relatively low," the minutes said. 

    -The Inflation Report, however, was far from dovish. It showed the 

output gap turning from slightly negative to positive, with 1% excess 

demand in three years' time.

     A 1% positive output gap is relatively large and the Inflation 

Report showed inflation moving steadily higher in the second and third 

years of the forecast. 

     -Inflation on the target measure was shown falling below target in 

Q3 and reaching its low point of 1.63% in Q4 2019. It was then projected 

to stay below target through 2020, rising to 2.05% in Q2 2021 and 2.16% 

in Q2 2022.  

     The undershoot of inflation near-term reflected a mix of lower than 

anticipated domestic energy costs and firmer sterling pushing down on 

import prices.

    -The MPC did not make any comments directly addressed to current 

market rate assumptions. This is in part because there is no easy fit 

between the BOE projections and market assumptions over Brexit.

     The  Inflation Report projections were again conditioned on the 

assumption that the UK would have a smooth transition to an average of 

Brexit end states, while market pricing includes the possibility of a 

disorderly no deal Brexit.

   -The possibility of larger than usual short-term volatility in UK 

data was highlighted in the Inflation Report and was linked to recent 

stockbuilding ahead of Brexit. UK GDP was anticipated to have risen by 

0.5% in Q1 2019 reflecting a short-term boost due to stockpiling. GDP is 

expected to decelerate in Q2 to 0.2%, as companies may not continue 

expanding stocks. 

     The Bank's Agents' survey results are in line with other survey 

evidence emphasizing the greater than usual growth rate of stocks. 

--London Bureau; e-mail: david.robinson@marketnews.com 

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