-Repeats Item First Transmitted At 1625 GMT Wednesday
-One In Five See Fresh QE At June MPC Meeting; 14 in 31 By August

LONDON (MNI) – Recent data and events have kicked away the props
the Bank of England Monetary Policy Committee has used to support its
case for no fresh stimulus and a growing number of analysts believe it
is only a matter of time before the MPC acts.

An MNI survey found one out of five economists predicting the MPC
would sanction a further Stg50 billion in quantitative easing at this
week’s meeting and just shy of one-in-two forecast extra QE will be in
place after the August meeting.

With headline UK inflation still a full percentage point above the
2.0% target some on the MPC are expected to continue to resist calls for
further stimulus but they risk being outvoted in coming months.

Back in March and April, the MPC’s mantra was that underlying UK
economic growth was stronger than the official data would show while
there were significant risks inflation would prove to be more resilient
than previously forecast.

“If the overall story of recovery in underlying growth still
looks broadly intact, there has been bad news on the inflation front,”
BOE Deputy Governor Paul Tucker said in a speech back in mid-April.

The majority on the MPC in March through May endorsed an approach
of aiming to re-establish their inflation fighting credentials by
keeping policy on hold and with the headline rate not back below 3%
there will be reluctance to act. Their argument that the recovery is
still broadly on track, however, has been strained to breaking point by
the broad-based weakness in Q1 GDP data and recent activity surveys.

From an inflation credibility perspective, the majority on the MPC
don’t want to provide more stimulus, with their forecasts showing CPI
holding above 2% throughout this year, Philip Shaw, chief economist at
Investec, says. Nevertheless, he is predicting a further Stg50 billion
of QE in August.

“The MPC isn’t moving towards it (more QE), it is going to have to
be pushed,” he says.

The weakness of not just the growth data and renewed euro area
jitters, which are driving up bank funding costs, are pushing the MPC
towards acting.

The latest CIPS manufacturing survey, showing the second fastest
monthly decline in the series’ history, prompted some analysts to change
their MPC calls.

George Buckley, chief UK economist at Deutsche Bank, switched his
forecast for the MPC’s June 6 and 7 meeting to an extra Stg50 billion of
QE from unchanged in the wake of last week’s CIPS manufacturing data.

Economists at Morgan Stanley are also now predicting a further
Stg50 billion this week while Malcolm Barr, chief UK economist at JP
Morgan, says the decision will be very close this week although he
predicts the MPC will hold off on further stimulus until July.

Analysts, including those predicting further QE this week,
acknowledge it will be a tough call to form a majority on the MPC in
favour of more QE.

While the May minutes said that the decision on more QE was “finely
balanced” for several members, others have come out in recent weeks and
argued strongly against it.

BOE Executive Director Markets Paul Fisher talked in a Dow Jones
interview about more QE being appropriate if the UK faced a renewed risk
of serious recession, but not otherwise, while BOE Chief Economist
Spencer Dale argued that as soft growth was due in part to supply side
weakness more QE may do little to address the underlying problem.

With Tucker, and his MPC colleague Martin Weale, having been
standard bearers for the concerned-over-inflation line and MPC member
Ben Broadbent recently declining to endorse the “finely balanced” view,
there are doubts over where the five votes needed for more stimulus
will come at this week’s meeting.

“They won’t do more QE unless there is another shock,” Simon
Hayes, chief UK economist at Barclays, says.

With David Miles already having come out in favour of more QE,
Hayes says the only MPC members who has acknowledged the decision
was “finely balanced” in May was Adam Posen, in an MNI interview.
The only other plausible candidates for this viewpoint are BOE Governor
Mervyn King and Deputy Governor Charles Bean.

Barr believes the pro-stimulus camp will fall one vote short of a
majority this week on exactly the same grounds, with Broadbent, Dale,
Fisher, Tucker and Weale all voting for no change.

A split vote looks inevitable, with the fact that the potentially
key May CIPS services data, which the BOE was handed last week, will
only be published on Thursday morning, just two and a half hours before
the vote is announced, adding to the uncertainty.

There is no easy, or wholly reliable, way of calculating what
chance markets are putting on more QE at this week’s meeting.

“Given how much is being influenced by the European shambles it is
difficult to pinpoint how much is being priced-in,” John Wraith,
fixed-income strategist at Bank of America Merrill Lynch, says.

Nevertheless, he finds evidence that anticipation of more QE has
mounted, citing the sharp fall in long Gilt yields after last Friday’s
CIPS manufacturing data. Wraith notes the 10-to-15 year part of the
curve has clearly benefited from safe haven flow, making it hard to
strip out QE effects there but with the longer end, which was hit
hardest by the pause in the flow of QE, suggesting more QE is back on
the table.

Sam Hill, a fixed income strategist at RBC is among the majority of
analysts not expecting more QE this week but “you can’t afford to be
away from your desk at midday on Thursday,” he says.

–London newsroom: +44 207 862 7491; email:drobinson@marketnews.com

[TOPICS: M$$BE$]