LIVE MARKETS-The great divide at the Bank of England

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THE GREAT DIVIDE AT THE BANK OF ENGLAND

The Bank of England is set to announce its policy decision tomorrow. Markets are expecting a quarter-point rate cut, but there remains a lot of uncertainty about what individuals on the rate-setting committee are going to do.

Deutsche Bank chief UK economist Sanjay Raja expects divisions on the committee to remain, or perhaps even tighten, with the vote tally coming in a 2-5-2 split.

He believes Pill and Mann will vote to keep rates on hold, Governor Bailey to be joined by Lombardelli, Breeden, Ramsden and Greene in voting for a 25-basis point cut, and Dhingra and Taylor pushing for a deeper 50-basis point move.

Berenberg economist Andrew Wishart also calls for a 2-5-2 vote split, as happened in May.

"We expect a repeat in August as a weaker labour market and higher inflation than the BoE predicted in its May forecast sustain the divide," Wishart says.

Goldman Sachs calls for a 2-6-1 vote with only one member voting for a larger 50-bp move.

"The risks around this look two-sided, with either just vote for a hold (most likely Pill) or no votes for a larger cut possible," Goldman says.

Morgan Stanley expects a 1-7-1, with Mann voting for a hold and Dhingra voting for the larger 50-bp move.

They see the seven voting for a cut to be divided themselves into three camps:

1/ "Gradual and careful" cutters, who see two-sided risks to inflation (Bailey, Lombardelli, Breeden).

2/ "Cautious" cutters who might warn that further convincing evidence of labour market slack translating to price disinflation is needed before removing restrictiveness further (Pill and, on balance, Greene).

3/ Taylor and Ramsden who will describe inflation risks as skewed to the downside.

(Samuel Indyk)

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