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MNI STATE OF PLAY: BOE MPC Not Under Near Term Hike Pressure

MNI (London)
--Public Takes On Board Interest Rates Heading Higher
By David Robinson and Jamie Satchithanantham
     LONDON (MNI) - The Bank of England Monetary Policy Committee steered clear
of offering any guidance on the likely timing of the next hike and provided no
commentary on market rate expectations at its December meeting. 
     The minutes showed that the MPC has seen nothing so far to alter its big
picture of prolonged subdued growth, with inflation falling gently from a peak
just over 3% back to its 2% target. Progress in the European Union exit talks
only bolstered the MPC's forecasting assumption that business and consumers
would continue to act on the belief that Brexit would be orderly.
     The MPC's December meeting, following the November hike and quarterly
forecasting round, was a low key affair.
     The minutes cited some evidence of weakness in the fourth quarter but
political economy developments were supportive of activity. The November Budget
was expected to add a touch to growth and the likelihood of the UK progressing
to the second phase of Brexit talks was seen strengthening business and consumer
confidence.
     --BREXIT SUPPORT
     While Chancellor of the Exchequer Philip Hammond portrayed his November
Budget as another step on the road to fiscal rectitude, Bank economists
estimated that it would add 0.3 percentage points to GDP over the Bank's three
year forecast horizon and 0.1% to headline inflation.
     The breakthrough in the first phase of Brexit talks "would reduce the
likelihood of a disorderly exit and was likely to support household and
corporate confidence."
     The MPC will look at these developments in more depth in the quarterly
forecast round for the February Inflation Report.
     Near-term, Bank economists said that survey weakness suggested that fourth
quarter growth could be softer than assumed. That was surprisingly gloomy as the
Bank's forecast was for 0.4% quarter-on-quarter growth while the National
Institute of Economic and Social Research estimated that the economy is growing
at 0.5%, suggesting risks to the upside not the downside.
--GUIDANCE SILENCE
     No MPC member has offered any clear guidance on when they believe the
committee should tighten next since the November hike. Markets have been pricing
in another increase by November 2018.
     With the Bank's forecast showing inflation drifting back to around the 2%
target on market rate assumptions, MPC members will feel that they have time
before they need to sharpen the focus on a near term hike.
     The February Inflation Report forecast round will contain the annual supply
side stocktake. BOE Governor Mark Carney and his colleagues may well be content
to keep things low key at least until May if the economy continues to develop as
expected.
     The committee wanted to see how the November hike, the first for a decade,
was received and all the evidence is that reactions were calm, and the public
did a better job than some pundits of understanding that it likely marked the
start of a tightening cycle.
     Survey evidence found "encouraging signs that the general public accepted
the case for higher interest rates and believed that interest rates were likely
to rise further," the minutes said.
     Having got that message across to the wider world, MPC members are likely
to be under little, if any, pressure to sharpen it in the early months of 2018.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
[TOPICS: MX$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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