Survey: Analysts Push Forecast For BOE Rate Hike Back To Q4

Author: Market News International | Category: News

–Dwindling Number Of Analysts Forecasting August Hike
–Median F’cast Nov Hike; Many See Risks Skewed To No Hike Until 2012

LONDON (MNI), June 8 – Analysts’ median forecast for the first Bank
of England Monetary Policy Committee Bank Rate hike has been pushed back
to the fourth quarter of this year.

A Market News International survey conducted ahead of the June MPC
rate announcement found the median forecast is for a single Q4 25 basis
point rate hike in 2011. The corresponding survey before the May meeting
showed analysts’ median prediction was for two hikes, with the first
coming in Q3.

Even those analysts predicting a November hike highlight the risks
that a move could now be delayed until 2012.

David Owen, economist at Jeffries, sees November as the most likely
month for a hike but attaches only a 40% chance to it and says “its
quite possible it’s delayed until 2012.”

Nick Bate, at Bank of America/Merrill Lynch has stuck with his call
for an August hike but says it is “looking increasingly unlikely.”

The Market News survey, which covered analysts at 40 institutions,
found no-one predicting any change in policy at the June meeting, 10
predicting a Q3 hike and 25 forecasting a quarter point hike, either for
the first or second time, in Q4.

The survey suggests analysts are still more hawkish, on balance, on
rates than markets. Based on ICAP Sonia, at time of writing markets were
putting a 45% chance on a November hike with a 25bp hike only fully
priced in by April next year.

The median forecast in the Market News survey put a 60% chance on a
November hike.

The widespread view among economists, and in the BOE’s own
forecasts, is that inflation is set to remain well above the 2.0% target
level this year.

The BOE’s but the MPC is expected to further delay taking any
action, with economic activity currently appearing subdued.

“There is an element of a dual mandate here,” Tim Drayson,
economist at Legal & General Investment Management, said, with the MPC
implicitly adding a growth mandate to its explicit inflation one.

Drayson sees no hike until 2012 and he believes that with UK
mortgagees highly sensitive to a rate hike, with L & G estimating around
9 in 10 are on variable rate mortgages, the MPC will only hike Bank Rate
to 1.0% by end 2012.

The median forecast, however, is for Bank Rate to end 2012 at
1.75%, down from the 2.0% median projection in the May survey.

One significant development to come out of the MPC June meeting
will be which way newcomer Ben Broadbent votes at his first meeting.
That will only emerge in the minutes, out on June 22.

Owen says that while Broadbent research when he was at Goldman
Sachs may have suggested he was hawkish, there is no easy read across to
how he will actually vote, as he will have full access to the BOE’s
internal models and assessments.

When you move over to the Bank “you get to look under the bonnet
…(and) see more of what is going on in the engine of the economy,”
Owen said.

A fair number of economists have predicted that, with Broadbent
replacing arch hawk Andrew Sentance and with the activity data
weakening, only two MPC members will vote for a hike in June, compared
to the three who backed one in May.

For the full survey please the accompanying story.

For more information contact UK editorial on 44-20-7862 7491 or e-mail:;

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

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