MNI POLICY: BOE Sees Hefty Demand/Supply Virus Hit: Minutes

-MPC Thought Near Term Inflation Falling Below 1% Possible: Minutes

-No Direct Commentary On Likelihood Of Further Stimulus: Minutes

By David Robinson

     LONDON (MNI) - The Bank of England sees a chance inflation could fall below

1% as soon as April, the minutes of the special Monetary Policy Committee

meeting on 10 March show. 

     The extraordinary meeting resulted in a 50 basis point rate cut and the

launch of a new Term Funding Scheme and the minutes highlight the MPC's concerns

that both supply and demand could be hit hard in the near-term by coronavirus.

     The minutes, however, shed no direct light on whether the MPC was likely to

sanction further stimulus at its end month meeting, with that announcement due

on March 26.

     The following are points from the minutes:

     -The Bank's Agents looked into the impact of the coronavirus and found "its

effects were broadening and moving fast." Some manufacturers reported supply

disruption and there was lower demand in the transport and hotel sectors. In the

retail sector, there were offsetting effects with some evidence of stockpiling

but lower demand in the clothing sector.

     -The MPC envisaged substantial supply and demand hits ahead, with one of

the main hits coming from reduced working. Supply capacity was expected to be

hit by some people being unable to work and supply chain disruptions. On the

demand side there were likely to be a string of hits. People isolated at home

were expected to cut spending, major purchases could be delayed and corporate

investment plans put on ice.

     -Near term inflation was expected to be very weak due to the plunge in oil

prices. "The sharp fall in the oil futures curve had resulted in a lower

short-term forecast for inflation. CPI inflation was now expected to fall back

slightly in February and March, before dropping to around, and possibly below,

1% in April," the minutes said.

     -The minutes spelled out the logic to the easing, with all nine members

supporting the stimulus package, but did not address the question of whether the

MPC was expecting to add more stimulus this month.

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

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