–Bean, Tucker Cite Upside Inflation Risks
–Bean Says He’s “Slightly North” Of BOE Inflation Forecast
–King Notes No Hard And Fast Market Expectation Of Much More QE

LONDON (MNI), Feb 29 – Bank of England officials dampened
expectations that further asset purchases will be announced when they
meet at their next key policy rendezvous in May – barring a
deterioration in domestic economic prospects or a new downward twist in
the euro area crisis.

In evidence to the Treasury Select Committee, BOE Governor Mervyn
King said that he saw no “hard and fast” expectations in the markets
that there would be “much” further QE beyond the stg50 billion agreed
earlier this month, while Deputy Govenors Charles Bean and Paul Tucker
put themselves on the hawkish side of the MPC’s central inflation
forecasts.

Written evidence showed that the two deputy governors were worried
about the danger of inflation coming in higher than projected in the
BOE’s February Inflation Report.

Since the latter showed inflation at near 1.8% in two years time,
just a shade below the 2% goal, that suggests these two regard CPI as
pretty much bang on target.

Bean noted the recent fall in inflation and said “I expect it to
continue falling back in the near term” but he added “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,” with the path of inflation depending on
firms’ profit margin rebuilding and the evolution of productivity and
labour market slack.

Tucker highlighted both upside and downside risks to the inflation
outlook, with the key downside risk coming from “the tangible
possibility of calamity in the euro area.”

He spelled out wages and oil as two key upside risks.

“There are in my view upside risks to the February Inflation
Report’s central projection from a more rapid pickup in wages if some
people leave the labour force, from the possibility of disruption to oil
supply in Nigeria and Iran, and from a rebuilding of profit margins once
recovery appears more secure,” Tucker said.

In oral evidence, Bean defended the MPC’s view that household
spending will pick-up pace in the second half of this year, something
which has been cited as a source of optimism on the economy by a number
of other MPC members.

It is “a key question, if they (households) have fully adjusted or
if there is any more adjustment to come” to the deterioration in
expected earnings, he suggested.

“I think quite a lot of the adjustment has probably come through
and that is why I am reasonably confident that barring any unforeseen,
adverse shocks … that we should see household spending growth pick-up
as we go through into the second half of this year as the squeeze on
household incomes fades,” he said.

Bean also noted the rise seen in the PMI surveys, both in the UK
and also globally in recent months, underpinning indications of a
pick-up in activity.

Even the uber dovish Adam Posen made clear he was not desperate to
expand QE still further.

Posen, along with fellow MPC member David Miles, voted for stg75
billion further QE at the February meeting, while the other seven
members backed stg50 billion. He told the TSC the difference was not
material, implying he will not vote for another stg25 billion in coming
months.

“Whether or not we add stg125 billion or stg150 billion to me is
not actually material,” Posen said.

“What is important is we have done the equivalent, roughly, of a
100 basis point plus cut in interest rates,” he added.

The comment suggests that Posen, who also reiterated today that he
shares the broad outlines of the BOE’s February inflation forecast, will
not get too hung up on the need for further QE in the months ahead,
despite his break with the majority in February.

One of the key reasons he gave for his stg75 billion vote was his
fear that the supply capacity of the economy could be permanently
reduced by prolonged sub-par growth. But, in comments to the TSC, Posen
concurred with Bean that, while this remained a danger, there was no
threat of supply potential being eroded in the short term.

King – a close follower of broad money data – said he took
encouragement from the January money supply data, published by the BOE
earlier Wednesday.

“They show a large increase which more than offsets the fall in
November and December. Now, we shouldn’t pay too much attention to any
one month … but actually for the last three months then money has
actually expanded,” King said.

“So, that is encouraging news this morning,” King said.

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

[TOPICS: M$$BE$]