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(Z1) Bullish Focus


(Z1) Eyeing Resistance


Mixed In Asia

By David Robinson
     LONDON (MNI) - A majority on the Bank of England Monetary Policy Committee
looks sure to stick to its wait-and-see approach at its meeting May 2, with the
Bank's in-house business survey set to show fresh evidence of the impact of
Brexit uncertainty.
     Analysts have speculated about the possibility of a hawkish dissenter on
the nine-member committee. Comments from external members Michael Saunders and
Chief Economist Andrew Haldane show both have sketched cases for tightening but
the argument for raising Bank Rate from 0.75% appears to be far from compelling.
     Saunders' recent research has focused on how cuts and hikes in the policy
rate when it is near its effective lower bound have a muted impact on mortgage
and other lending rates, as lenders utilise a variety of funding sources and
widen or compress net interest margins.
     "If the monetary transmission mechanism is less effective at a low rate
level ... The MPC could allow for this issue by adjusting monetary policy
slightly more actively (when the policy rate is low) in order to produce a
desired impact on the economy," Saunders said in a March 6 speech.
     This advocacy of rate activism gives Saunders a reason to back earlier
tightening and, like Haldane, he has placed weight on the pick-up in wages,
although it is a moot point whether average weekly earnings growth will gather
momentum or stall around the 3% level.
     The BOE`s May Inflation Report, which will be published Thursday, will also
have to factor in soft global growth, the dovish turn from central banks in
other advanced economies and reduced import price pressures -- none of which
help the case for a hike.
     While the Brexit deadline has shifted from end March to end October, the
risk of a cliff-edge, disorderly departure from the EU still looms for business.
     MPC members have stressed that what matters is how consumers and business
respond ahead of Brexit. The MPC will have the results of another round of
questions from the Bank's Decision Maker Panel, with a wide range of firms asked
about how the prospect of EU withdrawal is impacting their decision making and
when they think the process will actually end.
     It would be a surprise if the extension of the Brexit deadline is long
enough to have done much to bolster business investment.
     Nor do developments overseas add to the case for tightening.
     "Given that at present economic growth is probably not strong enough to
create excess demand and inflation is reasonably well behaved, for now it makes
sense to wait and to see how Brexit developments unfold," Saunders said in
     MPC minutes on Thursday will reveal whether he has altered his stance, but
the majority will agree with his March view.
--MNI London Bureau; +44 203 865 3829; email:
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