REPEAT: MNI STATE OF PLAY: BOE MPC On Hold June, Study Data

--BOE MPC Jun Meeting Likely Policy Non-Event

--Focus Is On How MPC See Data In Run-up To Aug Meeting

By David Robinson

     LONDON (MNI) - The Bank of England Monetary Policy Committee's June meeting

looks set to be a policy non-event, with the focus instead on members'

assessment of the latest data ahead of the key August meeting.

     Earlier this month MPC members Dave Ramsden and Silvana Tenreyro both

sounded fairly confident that the soft growth seen in the first quarter would be

ephemeral, but subsequent official data showed that the soft spot stretched into

the second quarter. Sterling overnight rates, showing a near 50% chance of an

August hike, reflect the confusion over what is going on and the MPC's upcoming

meeting may leave that uncertainty hanging.

     In the Bank's May Inflation Report, the assessment was that growth, which

limped in just 0.1% higher on the quarter in the snow-hit three months to March,

would accelerate to 0.4%. 

     "Maybe GDP will be higher than 0.4% in Q2 but we were comfortable with our

forecast ... I feel as if I have a clear and reasonable understanding of what is

going on, we will learn more," Ramsden said at a Barclays seminar on June 7.

     --SLOWER RECOVERY

     The official data since he spoke may have dented that confidence. It showed

that in April manufacturing output fell 1.4% on the month, industrial production

dropped 0.8% and construction output rose, but only by 0.5% after a 2.3% fall in

March. The National Institute of Economic and Social Research estimated that GDP

growth was just 0.2% in the three months through May.

     Even at its August meeting the MPC will still not have the initial official

estimate of Q2 GDP but the absence of official data need not be a hurdle to

tightening.

     The Bank has spent time and money developing its own 'nowcasts' of economic

growth, running three separate models: a 'bottom up' one using output data;

another splicing mixed frequency data and the third which shrinks input data

into key variables which it uses to predict preliminary GDP. 

     The June minutes will reveal whether the MPC, using those nowcasts, have

lowered their Q2 GDP estimate. With potential growth estimated at 1.5% a year

the difference between growth running at 0.3% or 0.4% a quarter can mark the

difference between it being at or below equilibrium.

     --JOBS AND WAGES

     But even if Q2 growth is seen coming in below 0.4% labour market

developments will still be key in the policy outlook.

     Ramsden highlighted how, in current conditions even wage growth well below

the 4% plus levels seen before the global financial crisis, when productivity

growth was around 2%, are compatible with hitting the inflation target.

     "Today we seem to be in more of a "one plus two is three" world: given one

per cent productivity growth, wage growth only needs to reach three per cent,

not four, to be consistent with the two per cent target," Ramsden said.

     The likelihood is that the June meeting will see a repeat of the

seven-to-two vote in May, with external members Ian McCafferty and Michael

Saunders again backing a 25 basis point hike and the remainder making the case

to wait for fresh data and the August Inflation Report forecast round before

deciding.

     The wildcard is that Bank Governor Mark Carney will deliver a set piece

speech on the evening of the policy decision. As he has never voted in the

minority, with the last hawkish insider vote on the MPC predating his

appointment, any pointer from him towards or against an August hike could carry

more weight than the minutes published earlier in the day.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$B$$$,M$E$$$,M$$BE$]