MNI STATE OF PLAY: BOE Vote, Minutes Text Shout May Hike Is On

--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.

     --DISSENTING DUO

     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

round.

     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."

     --TRADE TENSIONS

     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: les.commons@marketnews.com

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