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--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.
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
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
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: firstname.lastname@example.org