LONDON (MNI), Sep 5 – Analysts believe there is a much increased
chance that the worsening economic situation will oblige the Bank of
England Monetary Policy Committee to extend quantitative easing at some
stage, according to a Market News’ survey.

The survey shows a 40% median chance that the MPC will make further
asset purchases, up from 27.5% last month, although hardly any are
expecting that the MPC will make such an announcement this Thursday.

As far as prospects for a rate increase are concerned, the median
forecast is for no hike in either 2011 or 2012. In the August survey the
median expectation had been that the first hike would come in Q2 next
year.

Bank Rate is now expected to end 2012 at its present record low of
0.5%.

BOE officials have signaled their concern over recent more gloomy
economic data in the UK and at the spread of soveriegn and financial
contagion in the euro zone. At the August Inflation Report press
conference, BOE Governor Mervyn King clearly indicated that more QE
remained a policy option.

The minutes of the August MPC meeting also showed more members of
the committee giving further QE some serious consideration, although the
feeling of the majority seemed to be that certain key downside risks to
growth would need to crystallise before policy action would be taken.

Since the early August meeting economic data has become more grim
and stockmarkets have fallen significantly. Euro zone and wider
international economic developments also remain highly concerning.

With U.S. jobs growth flat last month, markets believe it is more
and more likely that the Fed will launch some form of new policy
stimulus. If it does the BOE may not be far behind. While this
week’s Sep 7-8 meeting may not bring an announcement of further QE, more
committee members could well join Adam Posen in backing such an
extension.

Following the latest batch of strikingly weak August PMI data,
some analysts have become even more convinced that the BOE will start
QE2. Citigroup’s Senior UK Economist Michael Saunders said in a note
this morning that he expects QE2 to be announced either at the September
meeting this week or in October.

Martin Weale – hitherto a hawkish member of the MPC – flagged in a
keynote speech last week that neither recent data nor stockmarket trends
bad as they have been – had been enough for him to support more QE, but
was clear that the MPC would turn to this policy tool if things got
worse. Other members may well want to vent their views in public in the
weeks ahead, especially given the controversy which still surrounds the
subject at a time when headline inflation remains so high.

Level Level Level Level Level Level
Bank Bank Bank Bank Bank Bank %
Rate Rate Rate Rate Rate Rate Chance
End End End End End End Of
Q3 Q4 Q1 Q2 Q3 Q4 More
2011 2011 2012 2012 2012 2012 QE
————————————————————————
Median 0.50 0.50 0.50 0.50 0.50 0.50 40.0
Mean 0.50 0.50 0.51 0.52 0.59 0.66 43.5
High 0.50 0.50 0.75 1.00 1.25 1.50 80.0
Low 0.50 0.50 0.50 0.50 0.50 0.50 20.0
————————————————————————
Number Responses 23 23 23 23 23 23 17
————————————————————————
4Cast 0.50 0.50 0.50 0.50 0.50 0.5 n/a
Allied Irish Bank 0.50 0.50 0.50 0.50 0.50 0.5 20
BNP Paribas 0.50 0.50 0.50 0.50 0.50 0.5 75
BoA-ML 0.50 0.50 0.50 0.50 0.75 1.0 40
Capital Economics 0.50 0.50 0.50 0.50 0.50 0.5 60
Commerzbank 0.50 0.50 0.50 0.50 0.50 0.5 35
Global Insight 0.50 0.50 0.50 0.50 0.50 0.5 n/a
HSBC 0.50 0.50 0.75 1.00 1.25 1.5 n/a
Investec 0.50 0.50 0.50 0.50 0.50 0.50 40
JP Morgan 0.50 0.50 0.50 0.50 0.50 0.50 70
Lombard 0.50 0.50 0.50 0.50 0.75 1.0 25
Monument 0.50 0.50 0.50 0.50 0.50 0.5 35
NAB 0.50 0.50 0.50 0.50 0.75 1.0 20
Nomura 0.50 0.50 0.50 0.50 0.75 1.0 20
RBC 0.50 0.50 0.50 0.50 0.50 0.75 n/a
RBS 0.50 0.50 0.50 0.50 0.50 0.5 40
RIA 0.50 0.50 0.50 0.50 0.75 1.00 40
Schroders 0.50 0.50 0.50 0.50 0.50 0.50 35
SEB 0.50 0.50 0.50 0.50 0.50 0.50 75
Soc. Generale 0.50 0.50 0.50 0.50 0.50 0.50 30
UBS 0.50 0.50 0.50 0.50 0.50 0.50 n/a
West LB 0.50 0.50 0.50 0.50 0.50 0.50 n/a
Westpac 0.50 0.50 0.50 0.50 0.50 0.50 80

For further information contact David Robinson or William Wilkes on 4420
7862 7491; email: ukeditorial@marketnews.com.

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