–Median Probability Of May Hike Falls To 10% From 45% In Apr Survey
–Analysts More Hawkish Than Market Pricing; Two Hikes Seen This Year

LONDON (MNI), May 4 – Analysts are united in the belief the Bank of
England’s Monetary Policy Committee will leave policy on hold at its May
meeting, but they still expect two 25 basis point hikes this year.

A Market News International survey of economists at 35 financial
institutions found no-one predicting a May Bank Rate hike, with the
range of probabilities on a May move stretching from zero to 33%. The
median probability placed on May hike was just 10%, sharply down from
the 45% chance placed on a May hike in last month’s survey.

Analysts are, on balance, more hawkish than the markets. Analysts’
median forecast is for Bank Rate to rise from its current 0.5% to 1.0%
by year end, with the first hike coming in the third quarter.

By contrast, the sterling overnight index average, SONIA, is only
fully pricing in one 25 basis point hike by year end.

Closer inspection of the forecasts, however, suggests analysts are
not that far out from implied market expectations. There is a downward
skew to analysts’ forecast, with the mean forecast for Bank Rate to rise
to 0.67% in Q3 and 0.9% by Q4, and SONIA suggests the market is
attaching an almost 50% probability to a Q3 hike.

The data flow, and comments by MPC members, since April have
clearly weighed against a May hike.

Despite the latest inflation data showing CPI at double the MPC’s
2.0% target, recent activity data have tended to be soft, with Q1 GDP
rising just 0.5% on the quarter after its shock 0.5% fall in Q4. The
latest purchasing managers data suggest the rate of growth actually
eased at the start of Q2.

The MPC will announce its decision at midday Thursday.

“Tomorrow is a no brainer. No growth equals no rate hike,” Geoff
Dicks, economist at Novus Capital said.

Dicks says the majority on the MPC are targeting growth, and will
not hike until they are convinced the recovery is broad-based and
resilient.

“They are genuinely targeting output in the sense they would not do
anything to upset this recovery,” Dicks said, who is anticipating the
first hike in November.

Simon Lewis at Monument Securities does not expect the MPC to move
until the first quarter of next year.

He too highlights the MPC’s concern over weak growth and says
“recent figures show what a growth problem they have got.”

The following table shows analysts’ forecasts ahead of the May MPC
meeting.

!Level!Level!Level!Level!Level!Level!Level!% Chance!
!Bank !Bank !Bank !Bank !Bank !Bank !Bank !Bank !
!Rate !Rate !Rate !Rate !Rate !Rate !Rate !Rate !
!End !End !End !End !End !End !End !Hike !
!Q2 !Q3 !Q4 !Q1 !Q2 !Q3 !Q4 !In !
!2011 !2011 !2011 !2012 !2012 !2012 !2012 !May !
————————————————————————
Median 0.5 0.75 1.00 1.25 1.50 1.75 2.00 10.0
Mean 0.5 0.67 0.90 1.16 1.43 1.74 2.02 14.9
High 0.5 1.00 1.50 2.00 2.00 2.25 2.75 33.0
Low 0.5 0.50 0.50 0.50 0.50 0.50 0.50 0.0
Prior Survey Medians 0.5 n/a 1.00 n/a 1.50 n/a 2.00 45.0
Number Responses 35 34 35 33 30 28 29 25
————————————————————————
4Cast 0.50 0.75 1.00 1.25 1.50 1.75 2.0 10
ABN Amro 0.50 0.75 1.00 1.25 1.75 2.25 2.75 10
AIB 0.50 0.75 1.00 1.25 n/a n/a n/a 10
Barclays 0.50 0.75 1.00 1.25 1.75 2.25 2.75 10
BNP Paribas 0.50 0.75 1.00 1.25 1.50 1.75 2.0 n/a
BoA-ML 0.50 0.75 1.00 1.25 1.50 1.75 2.0 10
Capital Econ 0.50 0.50 0.50 0.50 0.50 0.50 0.5 10
Citi 0.50 0.75 1.00 1.25 1.50 1.75 2.0 n/a
Commerzbank 0.50 0.75 1.00 1.25 1.50 1.75 2.25 10
Credit Suisse 0.50 0.75 1.00 1.50 2.00 2.25 2.5 n/a
Daiwa 0.50 0.75 1.00 1.25 1.50 1.75 2.0 1
Deutsche 0.50 0.75 1.00 1.25 1.50 2.00 2.5 15
Global Insight 0.50 0.50 0.75 n/a 2.00 n/a n/a n/a
Henderson New Star 0.50 1.00 1.50 2.00 2.00 2.00 2.0 30
HSBC 0.50 0.50 0.50 0.75 1.00 1.50 2.0 n/a
ING 0.50 n/a n/a n/a n/a n/a n/a 25
Investec 0.50 0.75 1.00 1.25 1.50 2.00 2.5 30
Jeffries 0.50 n/a 0.75 1.00 n/a n/a n/a n/a
JP Morgan 0.50 0.75 1.00 1.25 1.50 1.75 2.0 15
Lloyds 0.50 0.50 0.75 1.25 1.75 2.25 2.5 25
Lombard 0.50 0.75 1.00 1.25 1.50 1.75 2.0 25
Monument 0.50 0.50 0.50 0.75 1.00 1.50 2.0 10
Morgan Stanley 0.50 0.75 1.00 1.25 1.50 1.75 2.0 n/a
NAB 0.50 0.50 0.75 1.00 1.25 1.50 1.75 20
Nomura 0.50 0.75 1.00 1.25 1.50 1.75 2.0 33
Novus Capital 0.50 0.50 0.75 n/a n/a n/a n/a n/a
RBC 0.50 0.50 0.75 1.25 1.50 1.75 2.0 n/a
RBS 0.50 0.75 0.75 1.00 1.00 1.25 1.25 10
RIA 0.50 0.75 1.00 1.25 1.50 1.75 2.0 15
SEB 0.50 0.75 1.00 1.25 1.50 1.75 2.0 0
Soc. Generale 0.50 0.75 1.00 1.25 n/a n/a n/a n/a
Standard Ch. 0.50 0.50 0.50 0.75 1.00 1.25 1.5 0
Stone McCarthy 0.50 0.50 0.75 1.00 1.25 1.75 1.75 30
UBS 0.50 0.75 1.00 1.25 1.50 1.75 2.0 n/a
West LB 0.50 0.50 0.50 0.75 1.25 n/a n/a 3
Westpac 0.50 0.50 1.00 1.00 1.50 n/a n/a 15

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For more information contact UK editorial on 44-20-7862 7491 or e-mail:
drobinson@marketnews.com; wwilkes@marketnews.com

[TOPICS: M$B$$$,M$$BE$]