–Dale, Weale Seen Possible Hawkish Dissenters

LONDON (MNI) – The Bank of England’s Monetary Policy Committee is
widely expected by analysts to have unanimously backed the stg50 billion
boost to quantitative easing at its February meeting, although many
would not be surprised if a hawkish dissenting vote or two appeared.

The likelihood of anyone voting for more than Stg75 billion looks
slimmer than the chance of an MPC member or two voting against more QE.

Adam Posen was thought to have been in favour of a larger boost to
the BOE’s asset purchases, having suggested to one newswire ahead of the
decision that the case for stg75 billion was a good one, but he told
reporters on Friday at Warwick University that he pretty much agreed
with the BOE February Inflation Report’s central forecast.

The latter shows inflation only marginally undershooting the 2%
inflation target in 2 years time. Consequently expectations that Posen
had pushed for a larger dollop of QE than his colleagues have
diminished.

“November’s forecast and this forecast are very close to where I
would be, the modal forecast is very close to where I would be, as
opposed to preceding forecasts where I was very clear about where there
was a strong difference between us,” Posen said.

Dissent is more likely to emerge from the hawks.

In the set of minutes for the January MPC meeting it was clear that
some members were getting anxious about upside inflation risks.

While ‘some’ members thought more QE was ‘likely’ at that meeting –
“For other members, the risks to inflation beyond the near term horizon
were more finely balanced and it was less clear that inflation would
fall below the target in the medium term”.

Recent improving UK activity data as well as the clear
stabilisation in euro area financial markets and impressive growth
numbers coming out of the US may only sharpen the concerns of the hawks
on the committee. Although falls in headline inflation may have provided
some assurance for them, it’s done little more than follow the path
forecast for it by the BOE back in November.

And uncertainties over CPI’s medium term path abound, particularly
now with Iranian tensions, and speculation over another oil price surge,
on the rise.

Analysts cite BOE Chief Economist Spencer Dale as the most likely
hawkish dissenter, followed by Deputy Governor Paul Tucker and MPC
member Martin Weale. Alan Clarke, economist at Scotia Capital, is one of
the few predicting a split vote, forecasting three dissenters, including
Dale and Weale.

In a Bloomberg TV interview in December, Dale aired his concerns
over further QE.

“Until we get a better sense of underlying inflationary pressures I
think there will be a nervousness in terms of the extent to which one
could keep on stimulating the economy,” he said.

The potential dissenters could, however, have been placated by the
implicit signal in the Inflation Report that unless things take a turn
for the worse further QE may well not be needed.

As BOE Deputy Governor Charles Bean said at the Feb 15 press
conference – the MPC looks at the ‘big picture’ and its central, modal
forecast, shown as a thick red band on the fanchart, shows inflation
roughly on target by the end of the forecast horizon.

“By the end of the forecast period, the risks of being above or
below the target are roughly 50-50. So in terms of – is the thick red
line at the target in the medium term? – the answer is yes,” Bean says.

“It is true that earlier in the forecast period there’s a slightly
greater probability of inflation being below rather than above the
target, but in terms of the monetary policy decision, we don’t try and
control the target inflation rate at a particular horizon; it’s the
general picture,” he added.

Interviews and commentary from MPC members ahead of the February
decision suggested that a number were already leery of ideas circulating
in the financial markets that the BOE would proceed along an ineluctable
path towards a lot more QE.

Ben Broadbent told MNI in an interview in mid-January that he had
been impressed by the stabilisation of funding markets across the
Eurozone and was upbeat about prospects for H2 as household incomes
perked up as inflation came off the boil.

David Miles and even Posen also sought to persuade the markets that
the BOE was not pre-set on some course of more and more QE.

It is easier to imagine Broadbent and Miles opting for stg50
billion now and a forecast which probably points to no more QE in the
near term than Dale and Weale, who have hawkish form. The minutes’ text
should shed light on how members arrived at the policy decision.

The Inflation Report makes clear that the extreme euro area
scenarios were not taken into consideration. But those risks could
materialise, putting more QE firmly back on the table.

As Posen told reporters “all kinds of things can happen in this
life.”

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

[TOPICS: M$$BE$]