–Repeats Item First Transmitted At 1345GMT Tuesday
–Median Forecast First Bank Rate Hike Q3 2011 Vs Q2 2011 in Sep Survey
–5 Out of 30 Analysts Forecast More Quantitative Easing This Cycle

LONDON (MNI) – Analysts have pushed back still further the expected
timing of the first rate hike by the Bank of England’s Monetary Policy
Committee and the probability attached to further quantitative easing
has risen.

The median forecast in Market News International’s October survey
of economists at 30 institutions is for the first hike in Bank Rate to
come in the third quarter of 2011. The trend of pushing back the timing
of the next rate hike is crystal clear. The median forecast in the
September MNI survey was for a hike in the second quarter of next year
and in the August survey it was for a first quarter one.

The median probability of further QE rose in the October survey to
35% from 30% in September, with five out of the 30 respondents attaching
a greater than 50% chance to more QE.

The survey shows those analysts who had expected near term
tightening by the MPC in retreat.

The data flow, suggesting the pace of growth is slowing markedly,
is one obvious factor behind the dwindling expectations of a near term
rate hike.

Economists at Nomura, for example, were predicting ahead of the BOE
MPC’s August meeting that the first hike in Bank Rate would come in
November, by September that call had been pushed back to February next
year and now it is for May next year.

“Most recent data have surprised us, and no doubt the MPC, to the
downside,” the Nomura economists said in a note.

At Deutsche Bank, the call ahead of the September meeting was the
first hike would come in the first quarter of next year. On Tuesday,
Deutsche’s chief UK economist George Buckley pushed back the rate hike
call to the second quarter of next year, and put a 40% probability on
more QE.

“The recent data flow suggests it will be later than we had
previously thought,” Buckley said.

Economists cite a host of indicators suggesting the recovery is
losing momentum.

The detail of the Q2 GDP data was not encouraging. While the 1.2%
quarterly growth looks impressive, there a sharp fall in the savings
ratio, to 3.2% from 5.5% in Q1 and 7.7% a year ago.

Inventories contributed 0.9 percentage points of growth, but this
boost is expected to fade. The slew of UK housing market data provide
plenty of support to those expecting another bout of house price
deflation. The purchasing managers surveys show a marked slowdown in Q3
growth from Q2, and most economists are predicting it will come in at
either 0.4% or 0.5% on the quarter.

If there is a surprise in the survey findings, it is that only in
six economists is predicting further quantitative easing.

Former Bank of England economist Richard Barwell at Royal Bank of
Scotland and the ex-BOE economists at Fathom Consulting are among those
championing the view the central bank will extend QE.

They argue the projections in the BOE’s next quarterly Inflation
Report, in November, will be supportive of further stimulus.

The BOE’s August Inflation Report on its central, modal projection
showed inflation fall below its 2.0% target by Q1 2012 and staying
through until Q3 2013. While that forecast suggested more stimulus might
be needed, the mean forecast, showing inflation rising back up to 1.96%
by Q3 2013, was just about compatible with unchanged policy.

Those BOE forecasts were based on well-above consensus growth
forecasts. The implied BOE forecast for 2011 was close to 3.0%, a full
percentage point above the average in the Treasury survey of independent
forecasters.

Erik Britton, at Fathom Consulting, says the BOE is going to have
to plug lower growth into its November forecasts, and while he
confidently expects more QE “how much more is another matter.”

Among those analysts expecting more QE, the question is whether it
takes place in November or next February. Allan Monks, economist at JP
Morgan put a 60% chance of more QE in November, rising to 70% in
February.

The majority view among analysts, however, remains that against a
backdrop of well above target current inflation, the MPC will not
relaunch QE.

This week’s meeting is seen as a sideshow – with no one expecting
any change in policy at the October meeting.

Please see table in the accompanying report for details of
analysts’ forecasts.

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

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