–Survey Shows Nine Out Of 26 Analysts Seeing More QE In May
–Mixed Data Flow Fuels Analysts’ Nuances On Policy Outlook
–Some MPC May Start To Review Feb QE Boost If Data Strengthen
–Posen, Miles Push For More QE May Be ‘Tactical’ Move

By David Thomas

LONDON (MNI) – No-one is expecting the Bank of England Monetary
Policy Committee to add to its asset purchase programme at its April
meeting this Thursday, but a significant number of analysts still
believe there could be some extension of QE at the May meeting of the
committee.

The results of an MNI/NTKN survey of analysts show unanimity on no
change at this week’s meeting, but nine of the 26 analysts believe there
will be some extension to QE at the May meeting.

The decision to boost QE by an additional stg50bn in February and
an Inflation Report forecast putting CPI at the 2-year point more or
less on target seemed to suggest that the MPC felt it had probably done
enough for the time being.

MPC Members Martin Weale, BOE Deputy Governor Charles Bean and
Chief Economist Spencer Dale all made clear in the aftermath of that
meeting – explicitly or implicitly – that they were disinclined to do
more QE.

Bean and Dale disclosed that their own individual inflation
forecasts were somewhat above the BOE’s published forecast. Weale
unambiguously signalled in a speech that he didn’t think there would be
any further asset purchases in the near term.

Richard Barwell, UK economist at RBS Global Banking and Markets,
notes that some of them actually argued at the February meeting itself
that there was a “decent case for doing nothing” but expanded QE
anyway.

Barwell labels this MPC subset “reluctant converts”.

Another way of looking at this is that this group saw itself as
taking out insurance against downside risks to growth.

This group “could get nervous about why they did more QE” if
global activity as well as oil and commodity prices turn out stronger
than expected, Barwell said.

Simon Ward of Henderson New Star echoes that.

“Highly questionable” is how Ward sums up the BOE’s QE2 programme.

Core prices are proving stickier than expected, Ward says, and it
is becoming clear that inflation is not falling back to 2% by year end.

If the hawks are worried about having done too much, the two dovish
dissenters on the committee – Adam Posen and David Miles – still believe
not enough has been done and they backed a further stg25bn in March.

“Tactical” is how Philip Rush sees that Miles/Posen move, saying it
is most probably aimed at preventing the stimulus from the current QE
programme being diluted should the view set in that the latest stg50bn
boost is the last.

Data flow since February has on balance provided more support for
the hawkish than dovish tendencies on the MPC.

Q4 GDP has been revised down to -0.3% q/q from an initial -0.2%
estimate and recent retail sales data underscored the weakness of
consumer demand.

On the other hand, business surveys paint a livelier view of the
economy in Q1 (the BCC Q1 survey, CBI data and PMIs being cases in
point), with activity returning to levels seen before the
intensification of the euro zone funding crisis in the late summer of
2011.

The divergence has left analysts divided on the immediate growth
outlook.

Barwell believes there is a “very decent chance of a technical
recession” when the ONS reports preliminary Q1 GDP in mid-April –
thanks to the “dreadful” state the construction sector is in.

On Q1 Rush is more ebullient and says the BOE’s now heady-looking
forecast for 0.5% growth in Q1 “can’t be ruled out” although the “risks
are clearly to the downside”.

The problem for the MPC is that growth is “tapering off” at around
this level, Rush says, rather than accelerating to escape velocity.

While this pace of recovery could be enough to stay the
committee’s hand in May, he can still imagine them doing another
stg25bn then.

Looking at the whole of the “policy-relevant horizon” of the BOE
February Inflation forecast CPI undershoots the target pretty much
throughout, Rush points out.

While some MPC members have put the emphasis on the “stock” view of
how QE works (Ben Broadbent being its most voluble advocate), there are
at least a few who stress the importance of “flow” effects – notably
David Miles. In that sense, a further stg25bn in May would mark a kind
of smooth ‘phase out’ of QE2 for the ‘flowsters’.

Winning more MPC votes for that view will be tough if incoming data
maintains its recent firmer bias.

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

[TOPICS: M$$BE$]