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

--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

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