Bank of England ends "drip-feed" news, but will clarity result?

By William Schomberg

LONDON, July 28 (Reuters) - The Bank of England runs the risk of sending mixed messages next week when it changes the way it announces its monetary policy decisions, designed as part of the Bank's push for greater clarity.

On Aug. 6, the BoE (Shenzhen: 000725.SZ - news) will simultaneously publish its monthly decision on interest rates, the breakdown of how its policymakers voted along with a summary of their debate, and its quarterly forecasts for Britain's economy, including inflation.

Until now, the announcements have been made on separate days, in what BoE Governor Mark Carney called "a drip-feed of news". This is changing because he wants the Bank's policy signals to be as clear as possible.

Yet the timing of the first combined announcement could complicate the BoE's communication task, coming as speculation is growing about the timing of a first rate hike in more than eight years.

With Britain's economy set to outpace other major advanced economies for a second year in a row, a split in the Monetary Policy Committee over rates appears imminent, with many analysts expecting the division to begin in August.

That would add to expectations that a first rate increase is not far off, especially if the MPC (KOSDAQ: 050540.KQ - news) 's two most hawkish members - Martin Weale and Ian McCafferty - are joined by a third member voting for a rate hike.

But at the same time, the Bank is likely to trim its inflation forecasts because of a new fall in world oil prices and a stronger pound which will make imports cheaper.

Lower inflation forecasts would normally be taken as a signal by investors that a rate hike is less urgently needed.

Ross Walker, an economist with RBS (LSE: RBS.L - news) , said markets might be confused whether to put more weight on a split vote or lower forecasts for inflation in two to three years' time.

"Whilst we all understand that the minutes and the Inflation Report are conveying slightly different things, I think there is a risk, on the day, that there are rather mixed signals," Walker said.

CLARITY

Carney has struggled to give a steer on rates in the past. In June 2014, he said they could go up sooner than expected, just before oil prices tumbled and took inflation to zero where it currently sits.

More than a year on, and with prices set to start rising again soon, Carney said on July 16 that a decision about raising rates would come into sharper relief at the end of the year.

Carney is likely to use his news conference on Aug. 6 to stress that the timing of a first hike is less important than the Bank's guidance that when rates do go up, they will rise slowly and to a lower level than before the financial crisis.

Rob Wood, an economist at Bank of America (Swiss: BAC.SW - news) /Merrill Lynch, said the volume of information being released meant investors might find it hard to draw out the message quickly.

"Mark Carney will have a job to do," he said, adding the key thing to look for would be any changes to the Bank's longer-term inflation forecasts. (Additional reporting by Jonathan Cable Editing by Jeremy Gaunt)