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MNI (London)
--No Reference To Market Rate Curves But Vote, Text Back May Hike
     LONDON (MNI) - The Bank of England Monetary Policy Committee (MPC) made no
reference to market expectations for a May hike in its March minutes, but the
vote split and text served to bolster expectations of tightening in May.
     The recent data flow has been pretty much as the MPC expected and the
committee members are now more confident that the acceleration in earnings
growth that they had forecast will materialize. Domestically generated inflation
pressures are expected to rise and the MPC name checked the May Inflation Report
forecast round.
     The committee could have signalled a looming hike through reference to rate
curves, but the message came through loud and clear without any need to talk
about market rate expectations. Two members backed an immediate hike and the
commentary highlighted upside inflation risks.
     The economic analysis of the two dissenting members, Ian McCafferty and
Michael Saunders, appeared to be pretty much in line with that of the majority.
     The disagreement on the MPC appeared to be over the benefits of moving a
little earlier rather than waiting to complete the May Inflation Report forecast
     The MPC collectively, however, also took the view that there was likely
only a very small amount of slack left and that it was being eroded. The
majority also expected pay growth to accelerate.
     The committee said that survey evidence, including the BOE agents' own
work, suggested that pay growth would rise as the labour market tightened and
"this provides increasing confidence that growth in wages and unit labour costs
will pick up to target-consistent rates."
     What negative news there was between the MPC's February and May meetings,
notably the rising trade tensions following the U.S. announcement of tariffs on
steel and aluminium imports, could ultimately fuel rather than diminish
inflationary pressure.
     If trade tensions did escalate this would result in a supply shock and the
MPC said it could "put upward pressure on global inflation."
     The anticipated rise in the UK's domestically generated inflation, due to
rising unit labour costs, would offset the diminishing pass through from
sterling weakness to prices. Against this backdrop, and with the February
Inflation Report showed a prolonged overshoot of the 2% inflation target, the
MPC has little reason to postpone a hike for long.
     What the majority appear to favour is completing the May Inflation Report
quarterly forecast round -- and using those projections to justify the next
increase in Bank Rate.
--MNI London Bureau; tel: +44 203-586-2225; email:
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MNI London Bureau | +44 203-865-3812 |