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Trend Condition Remains Bearish

--Votes 9-0 For Unchanged Policy And Asset Purchases
     By David Robinson
     LONDON (MNI) - The Bank of England Monetary Policy Committee voted 
unanimously to leave policy unchanged at its February meeeting, while 
the Inflation Report showed near term growth and inflation softer than 
previously expected, but further ahead growth was expected to recover 
and inflation to come in a touch higher.
    The following are key points from the report:
    -The Inflation Report forecast round gave Bank economists time to 
look in depth at the weakness in recent UK and global growth and the  
MPC took the view that it was likely to be ephemeral. "A period of 
softer growth domestically and in the rest of the world  was likely to 
prove only temporary and, in the UK, excess demand was expected to 
build over the second half of the forecast period," it said.
    -The MPC did not attach the line about temporary weaker global 
growth to its policy guidance. Instead it stuck to the mantra that "an 
ongoing tightening of monetary policy over the forecast period, at a 
gradual pace and to a limited extent, would be appropriate to return 
inflation sustainably to the 2% target."
    -Brexit uncertainty overshadows this Inflation Report. The MPC stuck 
to its convention of assuming a smooth transition to one of a range of 
Brexit outcomes, whereas market pricing has to place some weight on a 
disruptive Brexit outturn. The BOE's stylised Brexit assumptions suggest 
that Bank Rate may have to rise a little faster than the market had 
been assuming.
    -Inflation on the CPI measure was shown at 2.35% in Q1 2020 and 
2.07% in Q1 2021 and 2.11% in Q1 2022. These projections were based on 
Bank Rate rising from its current 0.75% to 0.9% at the end of this year, 
1.0% at end 2020 and 1.1% at end 2021.
   -Bank economists forecast Q4 2018 growth would be 0.3% and Q1 2019 
growth just 0.2%, with Q2 growth similar to Q1. These weak near term 
growth rates are all below potential. While the output gap was reckoned 
to be zero at present supply was expected to exceed demand near term, 
with a negative output gap of -0.25% in Q1 2020.
   Further out, however, bolstered by less restrictive monetary policy 
than previously assumed around the world and the removal of Brexit 
uncertainty, growth is expected to firm with a positive output gap of 
0.75% in Q1 2022.
   -The MPC said there was evidence from its own agents work and other 
surveys that Brexit uncertainty was hitting economic activity harder 
than previously thought. Business investment has been contracting, with 
corporate activity delayed awaiting the denouement of the Brexit 
negotiations. The agents survey found that around half of companies felt 
they were not ready for a 'no deal, no transition' Brexit.
   -Alongside Brexit questions the agents conducted a business pay 
survey, which found average pay was expected to nudge up to 2.9% in 2019 
from 2.8% in 2018. 
     London Bureau; e-mail: 
[TOPICS: M$B$$$,M$$BE$,MT$$$$]