–BOE MPC Took QE Decision Expecting CPI To Hit 5% Plus
–Elevated Inflation Expectations Stress Some On MPC

LONDON (MNI) – Analysts reckon the most likely outcome of the Bank
of England Monetary Policy Committee’s October meeting was a unanimous
vote in favour of more quantitative easing, but some raise the spectre
of a dissenting vote, most probably from Chief Economist Spencer Dale.

Dale has been one of those MPC members worried that high inflation
outturns will feed through into high inflation expectations and into the
real economy. The question is whether this concern was enough for him,
or any like-minded colleague, to break ranks and vote against more QE.

“It is not just a no-brainer that we should do more QE. We need to
think about the upside risks to inflation as well as the downside
risks,” Dale said in a Daily Mail interview published late September.

In a more recent Reuters interview, published after the Oct 6 MPC
decision to sanction stg75 billion QE, Dale did highlight the bleaker
economic outlook, with the euro zone sovereign debt crisis raging and
world growth slowing.

Explaining the QE decision Dale said, “The policy committee was
responding to the deteriorating economic outlook and I think that
deterioration largely reflects factors that are happening abroad.”

He said, however, that he was speaking as chief economist and
explaining why the MPC took its decision – and he avoided expressing any
explicit, personal view for or against the MPC’s policy decision.

Econonomists at Royal Bank of Scotland are in the minority in
believing the minutes of the October MPC meeting will show an
eight-to-one vote in favour of extending QE, with Dale going against it.

“I think he will have gone for no change,” says Richard Barwell,
RBS economist.

Barwell says it would have been a big step for Dale, having
recently argued more QE was not a “no-brainer”, and correctly
anticipating the rise in inflation near term to over 5% (it hit 5.2% in
September) to go ahead and vote for stg75 billion of it.

BOE Governor Mervyn King has repeatedly stated the view that
inflation is high because of a series one-off factors, but Dale has been
openly skeptical that this argument will wash with the public.

“We can come up with all sorts of clever and legitimate reasons to
explain our view but at some point people will say ‘inflation just seems
higher than it used to be’ and that is a very substantial risk,” he told
the Independent back in July.

Dale has not been alone in worrying about the risk of elevated
inflation fueling inflation expectations and undermining the credibility
of the MPC’s commitment to its 2.0% inflation target.

His colleague Martin Weale used the same argument in justifying
voting for a 25-basis-point rate hike alongside Dale up until the July
MPC meeting.

Analysts note, however, that Weale has given his clear support to
the QE decision, describing it as “an appropriate response to a
worsening economic crisis” in a Sky TV interview.

Deputy Governor Paul Tucker has been another with inflation
worries. Back in the first half of this year, when the MPC debate
centred on whether to hike or not, Tucker publicy identified himself
with the hawkish camp.

In late May he said, “We are very worried about inflation,” adding
“I have been voting for no change but my own decisions since the back
end of last year have been finely balanced.”

The majority view among analysts, however, is that in the same way
as when QE was first launched back in March 2009, the MPC will have
wanted to present a united front and the vote will have been unanimous.

Philip Shaw, economist at Investec, is one of those who anticipates
a nine-to-nil vote in favour of the stg75 billion extra in QE.

He says while it is possible Dale “dissented in some shape or
form”, possibly by voting for less than stg75 billion in QE, given
recent events Dale “can easily justify a change of opinion.”

The minutes of the October MPC meeting are due out at 0830 GMT
Wednesday.

For further information contact David Robinson on 0207 862 7491 or
e-mail: drobinson@marketnews.com.

[TOPICS: M$$BE$]