By Sumeet Desai
LONDON, Sept 30 (Reuters) - Some Bank of Englandpolicymakers may be only too happy to raise the prospect ofpumping more money into the economy but the chances of furthermonetary easing actually happening appear remote for now.
Speculation more easing was imminent gained ground last weekafter minutes of the policymakers' September meeting showed someof the nine-strong body argued that the probability moremonetary stimulus would be needed had risen over the last month.
One of them was clearly Adam Posen, who this week became thefirst Monetary Policy Committee member since November to openlycall for the BoE to expand its quantitative easing programme.
With the U.S. Federal Reserve also signalling last week thatit too could ease again, financial markets quickly ratcheted upbets that more asset-buying to pump money into the economy wason the cards.
In reality, any such move still looks a long way off.Inflation remains stubbornly high at 3.1 percent -- so far abovethe central bank's 2 percent target that BoE Governor MervynKing last month had to explain himself to the government.
Nor is inflation forecast to hit the target anytime soon.Value-added tax will rise in January and food prices are goingup fast. One MPC member, Andrew Sentance, has been calling forfor the past four months for interest rates to rise from theirrecord low of 0.5 percent.
That may well explain Posen's positioning. Talking up thearguments for more easing provides a counterweight to Sentance'scall for tighter monetary policy and ensures markets do notstart getting carried away with hike expectations.
"In our view, a 1-7-1 split on the MPC probably betterreflects the MPC's neutral stance than the 8-1 split -- withdissent in favour of tightening -- seen in recent months," saidMichael Saunders, economist at Citi. "We doubt that the overallMPC will support Posen's view." A Reuters poll published on Thursday showed just 16 out of51 economists expected the BoE to extend quantitative easing atsome point, compared to 5 out of 47 economists at the start ofthe month. [ID:nSLAUKE6E7]
Posen admitted that other members of the MPC might be ableto persuade him against voting for more easing at next week'spolicy meeting.
"The committee has to decide two things: first that it (moreeasing) would be needed, which is by no means a foregoneconclusion, in fact they may even talk me out of it," Posen wasquoted as saying on Thursday.
Adding to the uncertainty is the looming impact of harshpublic spending cuts, mostly yet to be enacted. The governmentwill unveil its spending review next month.
More QE now would be controversial. The BoE cut interestrates to 0.5 percent and started its asset-buying programme inMarch 2009, when the economy was in the middle of the worstrecession since World War Two.
It bought 200 billion pounds ($317 billion), mainly ofgovernment bonds, with newly-printed money before pausing earlythis year.
Things are now "on the mend", in the words of theInternational Monetary Fund earlier this week. Figures onTuesday confirmed that the economy grew at 1.2 percent in thesecond quarter, its fastest pace in nine years.
The MPC, like most analysts, expects that blistering pace toslow considerably in the second half of the year and in 2011when the government's planned fiscal squeeze takes effect. Buteven so it is not predicting a double-dip recession that mightjustify such extraordinary monetary loosening.
With little new data decisively pointing in eitherdirection, the MPC majority will likely want to wait for bothfinance minister George Osborne's spending review on Oct. 20 --to see just where the axe might fall -- as well as its own newset of forecasts for the November Inflation Report.
But a decision to ease policy in November risks a politicalstorm. Opposition politicians would likely cast the central bankas being forced to print money in order to protect the economyfrom the large spending cuts that are certain to be announced.
As the central bank usually likes to change policy duringits quarterly Inflation Report months, it may not be untilFebruary 2011 before MPC members would realistically look at ashift in stance.
For now, it looks as if most of them are prepared to waitand see how things develop as they see risks on both sides ofthe inflation outlook.
"The risks to the inflation target are real and substantial.The job of monetary policy is to try to balance these upside anddownside risks," BoE chief economist Spencer Dale said lastweek.
For Dale, retaining public confidence in the BoE'sinflation-fighting powers was key. If it looked as if continuedhigh inflation was costing the MPC its credibility, then rateswould have to rise. But so far, he said, inflation expectationswere relatively benign.
Posen may be hoping his call for easing will take the termsof the debate away from early tightening rather than actuallysucceeding in persuading his colleagues to loosen policyfurther. (Editing by Mike Peacock)