–Minority Still See Further QE This Year

LONDON (MNI) – The vast majority of economists expect the Bank of
England’s Monetary Policy Committee not to hike Bank Rate until the
fourth quarter of this year, at earliest, and a minority are still
predicting further quantitative easing.

A poll by Market News found the median forecast was for the first
hike to come in the fourth quarter of this year, with the second most
frequent response that it would come in the first quarter of next year.

The sovereign debt crisis in the eurozone’s peripheral countries,
weighing down on the area’s growth and shaking market confidence, is one
factor cited by analysts as a block on earlier monetary tightening.

“The global interest rates cycle has been pushed back by the
problems in Greece,” Peter Dixon, economist at Commerzbank, said.

He predicts no G7 central bank will hike rates this year.

Alan Clarke at BNP Paribas and Victoria Redwood at Capital
Economics both believe the MPC will sanction further quantitative
easing, with Clarke predicting further QE in August when the BOE has
completed its next forecast round.

Clarke notes the BOE’s May inflation projections showed CPI heading
back below target, and the central bank will now have to factor in the
impact of accelerated fiscal tightening in the emergency budget on June
22, along with weaker euro area growth.

The majority view, however, is that the MPC will simply sit tight
in coming months.

Stephen Lewis at Monument, says he believes some MPC members have
lost faith in QE, and if conditions do deteriorate it could use
alternative tools, such as European Central Bank style long term
funding.

The emergency budget could prove to be a double edged sword. If the
new government chooses to hike value added tax by the rumoured 2.5 pct
point, this could add anywhere between 0.5 percentage points to 1.5%
percentage points to headline consumer prices – depending on the pass
through by retailers.

Nick Bate, economist at BoA-ML, says the accelerated fiscal
tightening in the budget should mean lower inflation in the medium term
and interest rates staying low for longer, with MPC choosing to look
through the near term inflation effects.

Bate described the recent remarks of BOE Deputy Governor Charles
Bean – that inflation expectation rise significantly as a result of
higher headline inflation then the central bank will need to act as
“text book”. Bate believes the MPC will delay a hike until the first
quarter of next year, but monetary policy will not be as loose for as
long as it would have been if the fiscal tightening did not contain a
VAT hike.

While analysts modal forecast shows a hike in Q4 market pricing,
looking at SONIA, suggests no more than a 10% chance of a hike this
year.

The table below shows analysts forecasts, with the MPC policy
announcement due at 1100 GMT.

!Level of ! ! Time of !
!Bank Rate! Level of ! Next BOE !
!At End ! QE At End ! MPC Policy !
!June MPC ! June MPC ! Move (tightening !
!Meeting ! Meeting ! unless stated) !
————————————————————————
Median Forecast 0.5 200
Modal Forecast 0.5 200 Q4 2010
High Forecast 0.5 200
Low Forecast 0.5 200
————————————————————————
4Cast 0.5 200 Q2 2011
Action Economics 0.5 200 Q1 2011
Barclays 0.5 200 Q1 2011
BNP Paribas 0.5 200 Q1 2012
BoA/ML 0.5 200 Q1 2011
Capital Economics 0.5 200 2012
Commerzbank 0.5 200 Q2 2011
Fortis Bank 0.5 200 Q4 2010
Global Insight 0.5 200 mid 2011
Goldman Sachs 0.5 200 Q4 2010
Henderson 0.5 200 Q3 2010
Investec 0.5 200 Q4 2010
JP Morgan 0.5 200 Q1 2011
Lloyds TSB 0.5 200 Q1 2011
Monument 0.5 200 Q2 2011
Morgan Stanley 0.5 200 Q1 2011
Nomura 0.5 200 Q4 2010
RBS 0.5 200 Q4 2010
Schroders 0.5 200 Q4 2010
Stone McCarthy 0.5 200 Q4 2010
————————————————————————

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