–Majority Of MPC Seen Content With Current Policy Settings
–Weale, Tucker, Bean Point To Upside Risks, Miles Favours Activism

LONDON (MNI), March 2 – The barrage of comments in recent days from
Bank of England Monetary Policy Committee members show a three way
divergence in MPC thinking, but with the majority comfortable with
current policy settings.

The differences among MPC members, by even last year’s standards,
appear narrow. One member, David Miles, sketched out an activist case
for more stimulus, while on the hawkish side Martin Weale raised the
spectre of a rate hike, although that is hardly likely to be imminent.

Adam Posen, who led the way on the second wave of quantitative
easing, is now much closer to the MPC mainstream.

The minutes of the February MPC meeting set out the differences of
opinion, but left who thought what unclear. They revealed a more hawkish
faction, skeptical that inflation would fall as far and fast as the
Bank’s central forecasts showed.

“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,” the minutes said.

Yet no member of the MPC actually voted for QE to be maintained at
stg325bn.

This week’s comments show Deputy Governor Charles Bean is
explicitly one of these more hawkish members, and Weale is another.

Bean, in evidence to the Treasury Select Committee on Wednesday,
said he expected inflation to “continue falling back in the near term”
but “there is, however, some uncertainty about the speed at which
inflation will fall back after that.”

“I am, if anything, slightly north of the Committee’s best
collective judgement on this,” he added.

Weale, in a speech and question and answer session at CASS Business
School Wednesday, raised concerns over inflation, including from oil and
other import prices, and said he did not expect to vote for more QE.

“Import prices have been rising more than one might have expected
and a component of that is inflation from developing economies. And,
obviously, if that sort of process goes on and no offsetting adjustment
takes place, then it could turn into one reason why inflation might be
higher than we think,” Weale said.

When the current QE programme expires, ahead of the May meeting,
Weale said he did think it was likely there would be a further case for
QE and a rate hike could come before markets expect.

“The yield curve suggests that an increase in Bank Rate is not
fully priced in until mid-2014. But, obviously, if the very real risks I
see about inflation do materialise, then it is perfectly possible that
the first rise will come earlier than that,” he said.

Deputy Governor Paul Tucker also sounds close to the hawkish camp,
although he has a track record of making comments which seem hawkish
and then voting with the majority.

Tucker is perennially concerned about inflation expectations
becoming de-anchored from target. In a speech Tuesday he said monetary
policy has been left with “its classic role of underpinning demand” and
had provided extraordinary stimulus, but this may prove unsustainable.

“That stimulus can be sustained only so long as medium-term
inflation expectations remain anchored to our target of 2%. We must be
alert to the need gradually to withdraw stimulus as and when recovery
builds,” Tucker said.

Alongside Bean, Tucker and Weale, another member of the hawkish
camp, although he was out of the limelight this week, is Chief
Economist Spencer Dale.

Dale told Bloomberg TV back in December that while he expected
inflation to drop back to the “low 3’s” near term, he was uncertain what
would happen after that and until there was better sense of underlying
inflation pressure “there would be a nervousness” over further stimulus.

On the dovish side, David Miles on Thursday set out the activist
case for more stimulus, but he looks a little isolated.

“Aggressively loosening monetary policy now might bring us closer
to the point at which Bank Rate could be moved back towards a more
normal level … This is an argument that influences the way I see
monetary policy today,” Miles said.

However, the man who has been described as a “perma dove” or “uber
dove”, Posen, now looks more likely to stick with current policy than
push for further stimulus.

He told the Treasury Select Committee inflation risks were broadly
balanced around the target and he repeated his line that the forecasts
in the February Inflation Report were “very close to where I would be.”

Posen did join Miles in breaking ranks and voting for stg75 billion
further QE at the February meeting, rather than the stg50 billion the
majority supported – which took the total for second wave of QE to
stg125 billion. But he looks unlikely to push for that extra stg25
billion in coming months.

“Whether or not we add stg125 billion or stg150 billion to me is
not actually material … What is important is we have done the
equivalent, roughly, of a 100 basis point plus cut in interest rates,”
Posen told the TSC.

Governor Mervyn King steered clear of signalling more stimulus is
on the way in his evidence to the TSC, defending the current policy
approach.

The March meeting of the MPC is seen by all analysts as a non-event
for policy setting, with the focus on May when the MPC will have
completed its next quarterly forecast round.

Recent MPC comments, on balance, have considerably lengthened the
odds on more stimulus at that meeting.

–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com

[TOPICS: M$$BE$]