–Mixed Data, News Flow Seen Doing Little To Alter MPC Chemistry
–Hurdle To Further QE At Pivotal May Meeting Could Be High

LONDON (MNI) – With past months’ data flow having failed to provide
much reassurance on the recovery, minutes of the Bank of England’s
Monetary Policy Committee’s April 4-5 meeting look likely to show Adam
Posen and David Miles dissenting again in favour of a further stg25bn
boost to QE.

Analysts are universally looking for a repeat of the 7-2 vote split
in favour of unchanged stg325bn of asset purchases seen at the March
meeting.

Data flow since March hasn’t provided any justification for a
change in the world view of committee members. Survey data, including
PMI’s, the BCC’s Q1 survey of the SME sector as well as other sundry,
private sector surveys (the REC-KPMG jobs report and even the BRC’s
March retail sales report) have pointed to a moderate bounce off last
autumn’s nadir. But official data (Jan-Feb retail sales, February
industrial production/construction sector output) continue to underline
economic sluggishness.

IP data – which should have been available to the MPC at the April
4-5 meeting – would have made for particularly dismal reading.
Preliminary Q1 GDP data due out Apr 25 looks set to make the weather
ahead of the MPC’s pivotal May meeting. Chances are that this will show
anaemic growth at best.

NIESR estimates pointed to GDP rising by just 0.1% in the first
quarter of this year. That would follow a fall in growth of 0.3% in Q4
2011 and expectations that a series of bank holidays associated with
June’s Royal Jubilee could take a big bite of GDP.

It is also some way below the 0.5% q/q growth rate predicted by the
BOE in February.

So very little here it would seem to make either Posen or Miles
retreat from the view they set out in the March minutes:

“Two members continued to think that a larger monetary stimulus was
warranted to reduce the risk that persistently weak growth would damage
the future supply capacity of the economy. In their view, policy should
be loosened further to stimulate demand quickly…”

That said, data have probably been mixed enough to keep other MPC
members from joining the two in backing additional purchases. Even
those doves who may be inclined to back a bit more gilt buying will no
doubt be inclined to wait for the results of the May forecasting
round, which will be available at next month’s meeting and the first Q1
GDP release before making their minds up.

Despite all the not-so-good news flow, the hurdle to further asset
purchases could still be high, although hardly insurmountable come May.

Minutes for the February meeting of the committee at which stg50bn
of further QE was agreed, lifting it to a total of stg325bn, showed that
some members took the view that there was a good case for doing nothing.

“The Committee recognised that there were substantial risks to
inflation in the medium term in both directions, and that it would be
some time before the uncertainties around these risks were resolved.
There was a range of views among Committee members over the evolution of
these risks. For some members, the probability of inflation exceeding
the target was slightly higher than shown in the projection to be
published in the February Inflation Report, and a case could be made for
maintaining the stance of policy at this meeting. For others, the case
for further easing was more clear-cut”.

Since that meeting ended in unanimous support for doing more QE,
it’s a reasonable enough assumption that a number of members regarded
the decision as an ‘insurance policy’ against yet-to-materialise
downside risks to activity, implying they face a higher bar to support
yet more in May.

BOE Deputy Governor Charles Bean as well as Chief Economist Spencer
Dale indicated that their own inflation forecasts lay to the upside of
the BOE inflation forecasts, seeming to put them in this camp. The
hawkish Martin Weale has also more explicitly ruled out further QE in
public comments, although admittedly before the official data turned
sour – again.

Ben Broadbent’s commentaries have tended to strike a more
sanguine note on developments since the turn of the year. The seeming
success of the European Central Bank’s 3-year LTROs in stabilising
the markets has clearly impressed him, although their benign effect in
lowering peripheral bond yields is starting to look a bit erstwhile.

BOE Deputy Governor Paul Tucker gets a chance to vent his views in
a speech in Liverpool on Wednesday morning, although it is not clear if
his speech will be focused on monetary policy or financial stability.
Tucker became worried at the start of 2011 that the BOE was losing
credibility in the international financial markets over its commitment
to the inflation target. Signs that inflation may not fall back to
target by end 2012 may rekindle his angst.

Other more dovish members, such as the governor himself as well as
BOE Executive Director Markets Paul Fisher could more easily be won over
to the case for doing more QE by May. And even if domestic data fail to
provide a strong enough case for doing more QE, event risk on the euro
zone horizon abounds – French presidential elections, Greek elections,
Spain back in the markets’ firing line etc…

Any of the latter could shift market sentiment about the outlook
for the euro zone and at the same time dissolve MPC qualms about the
risks of doing more QE.

–London newsroom: 4420 7862 7492; email: dthomas@marketnews.com

[TOPICS: M$$BE$]