MNI PREVIEW: Hawkish Dissent Possible As BOE Set To Hold May 2

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

March.

     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: jason.webb@marketnews.com

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