February MPC vote could be tight
Simon Ward
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The February MPC vote is on a knife-edge, according to an "MPC-ometer" model designed to predict policy decisions based on incoming economic and financial information. The model suggests a 4-4-1 split (i.e. four votes to hike offset by Adam Posen's call for more QE), leaving the hawks just short of majority.
The MPC-ometer foresaw support for long-standing hawk Andrew Sentance at the January meeting – see previous post. Spencer Dale and Paul Tucker are plausible additions to the Sentance-Weale axis this month.
Most economists assume that a rate hike is still distant following news of a 0.5% fall in GDP in the fourth quarter and a defiantly-dovish speech by Bank of England Governor Mervyn King. The median forecast is for a quarter-point rise in the fourth quarter of 2011, according to the monthly Reuters poll.
The MPC is likely to discount the snow-affected headline GDP result but place weight on the ONS assessment of a "flattish" underlying performance – still notably weaker than expected. The MPC-ometer, however, judges that this negative surprise will be more than offset by a further surge in consumer and business price expectations in January as well as solid survey activity indicators and strong financial markets.
Analysts may have been bamboozled by Mr King's speech, which is not necessarily reflective of the balance of opinion on the Committee.
If the model forecast is correct, the hawkish camp will be well-positioned for a rematch in March, possibly armed with further data suggesting a strong GDP bounce-back in the first quarter.
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