----by VICTORIA MAIN----
LONDON (AFX) - The prospects of a Bank of England rate cut in May have risen following yesterday's surprise move by the U.S. federal open market committee, economists said.
On the release yesterday of the dovish minutes for the April meeting of the BoE's monetary policy committee, many economists predicted the independent rate-setting body would stave off easing monetary policy until after the election, widely expected on June 7. But economists said the 50 basis point cut in the U.S. could prompt the MPC to lower the repo rate by a further 25 basis points to 5.25 pct at the conclusion of its May 9-10 meeting.
This would be the MPC's second rate cut in as many months and its third this year. In a bid to bolster consumer and business confidence against the gloomy global economic outlook, it began easing rates in February.
The April meeting minutes showed MPC member Ian Plenderleith joining the customary doves, DeAnne Julius and Sushil Wadhwani, in urging a 50 basis point cut rather than the 25 basis point move favoured by the majority.
At least four of the MPC's nine members believed another rate cut could be necessary before long, according to the minutes.
Investec economist David Page predicted that the unexpectedly dovish tone of the minutes coupled with the U.S. easing would prompt the MPC to cut by another 25 basis points next month.
"To our minds, developments since the last meeting constitute downside news. The Federal Reserve shocked the market by cutting rates between meetings by 50 basis points to 4.50 pct," he said in a research note.
"An accompanying statement explained that softening capital investment and slower growth abroad 'threatens to keep the pace of economic activity unacceptably weak'," he said.
"We believe that this marks a deterioration in the U.S. and global outlook and should outweigh February's leap in average earnings and even the slight recovery in equity markets since the last meeting," he said.
Page said the MPC would be forced to choose between cutting rates in May or in July.
"Yet the worsening outlook for the global economy that led to a cut in U.S. rates is likely to lead the MPC to follow suit, cutting rates by a further 25 basis points in May," he said.
JP Morgan economist Danny Gabay agreed that a May rate cut looked more likely than it had prior to the U.S. move.
"The MPC has demonstrated its willingness to act and we expect at least one more rate cut from them over the next few months," he said. "And yesterday's move by the Fed, together with the clear signal that a majority of the MPC are both willing and able to respond to growing global concerns, significantly heightens the likelihood of a 25 basis point cut before rather than after the election," he said. Gabay said next Friday's preliminary gross domestic product figures for the first quarter would provide rate cut clues.
"If it comes in at 0.4 pct or below, we'll be looking at a rate cut in May, whereas 0.5 pct and above will mean a July move," he said. "I'm 95 pct certain we'll get another cut between now and July, and I'm picking 45/55 that it'll be in July rather than May," he said.
CSFB economist Robert Barrie was less sanguine about the prospect of a May rate cut.
"I won't say it's certain they won't cut in May, but I don't think they will," he said.
Barrie conceded however that it was difficult to read the implications of the U.S. move. Anyone who took the view that the Fed was acting to revive the U.S. economy would not see the need for a further BoE rate cut, while those fearing it was a sign of more economic gloom to come would look for a parallel move in the UK and elswhere, he said.
"You could buy into some sort of conspiracy theory and think that the Fed knows something that we don't that's about to come out in the wash. Maybe. But we don't know what we don't know," he said. "If there is bad news on the way, the MPC may be privy to it. But we'll know about it soon enough, if that is the case," he said.