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BoE set to keep interest rates at record low
inspector_monkfish
Posts: 9,276 Forumite
06:05 07Apr11 - BoE set to keep interest rates at record low
* Bank of England seen holding rates at 0.5 pct on Thursday
* BoE dilemma: Must cut inflation without damaging growth
* Markets betting on 60 pct chance of UK rate hike in May
LONDON, April 7 - The Bank of England is almost certain to ignore criticism that it has gone soft on inflation and leave interest rates at a record low on Thursday due to uncertainty about the strength of Britain's fragile recovery.
Inflation is running at 4.4 percent -- more than double the target -- and critics accuse the central bank of risking its credibility by refusing to tighten policy to control spiralling prices.
While the British economy is forecast to have bounced back in the first quarter after a shock contraction late in 2010, economists expect the BoE to wait for more signs of recovery before raising the cost of borrowing.
All but one of 67 economists polled by Reuters expects the BoE to leave its key rate at 0.5 percent on Thursday, where it has been since March 2009.
"The case for holding fire on interest rates for now at least is supported by still serious uncertainties and concerns about the underlying strength of the UK economy and its ability to withstand the increasing fiscal squeeze," said Howard Archer, chief European and UK economist at IHS Global Insight.
The Bank of England's rate-setting Monetary Policy Committee said last month that the recent rise in oil prices, fanned by tension in the Middle East and North Africa, had increased adverse risks to both inflation and growth.
Money markets show just over a 10 percent chance the BoE will raise rates on Thursday, and a 60 percent chance of a rise in May
ECONOMIC HEADWINDS
The economy faces strong headwinds from the impact of government spending cuts, tax rises and low wage growth, which are all likely to undermine domestic demand.
With many households feeling the pinch from higher prices, the BoE has faced growing calls to do more to curb inflation.
However, BoE Governor Mervyn King said last month it would be "self-defeating" to raise rates merely as a gesture to show it was taking inflation seriously.
A majority of BoE policymakers joined him in voting against a rate rise last month, judging that the risk of choking growth by raising rates is more serious than the effects of inflation.
At March's meeting, six members of the nine-strong Monetary Policy Committee voted to leave rates unchanged, Spencer Dale and Martin Weale wanted a 25 basis point hike, and Andrew Sentance voted for a 0.50 percent rise.
Minutes from that meeting showed the MPC feared inflation could soon exceed 5 percent, although they also noted consumer spending had "deteriorated sharply".
The economy's unpredictability was brought into focus this week with two starkly contrasting sets of data.
Figures on Wednesday showed industrial output unexpectedly suffered its biggest fall since August 2009 in February. A survey the day before showed the dominant services sector picked up in March to grow at its fastest pace in more than a year.
More dovish members of the BoE fear that a premature interest rate rise could cause future inflation to undershoot its target, due to risks to growth from public spending cuts, and squeezed household incomes. By contrast, the European Central Bank is seen raising rates on Thursday.
Wavering BoE policymakers may also want to wait for the release on April 27 of first quarter GDP figures before any hike. While a positive reading would be welcome, it may not tell the whole story about the UK recovery, an academic thinktank said in a report on Wednesday.
The National Institute of Economic and Social Research (NIESR), which produces monthly GDP estimates, said its estimate for a 0.7 percent first quarter rise in GDP was flattered by the impact of bad weather at the end of 2010.
"The underlying growth rate is weak. The average rate of growth in the final quarter of last year and first quarter of this year was 0.1 percent," it said.
* Bank of England seen holding rates at 0.5 pct on Thursday
* BoE dilemma: Must cut inflation without damaging growth
* Markets betting on 60 pct chance of UK rate hike in May
LONDON, April 7 - The Bank of England is almost certain to ignore criticism that it has gone soft on inflation and leave interest rates at a record low on Thursday due to uncertainty about the strength of Britain's fragile recovery.
Inflation is running at 4.4 percent -- more than double the target -- and critics accuse the central bank of risking its credibility by refusing to tighten policy to control spiralling prices.
While the British economy is forecast to have bounced back in the first quarter after a shock contraction late in 2010, economists expect the BoE to wait for more signs of recovery before raising the cost of borrowing.
All but one of 67 economists polled by Reuters expects the BoE to leave its key rate at 0.5 percent on Thursday, where it has been since March 2009.
"The case for holding fire on interest rates for now at least is supported by still serious uncertainties and concerns about the underlying strength of the UK economy and its ability to withstand the increasing fiscal squeeze," said Howard Archer, chief European and UK economist at IHS Global Insight.
The Bank of England's rate-setting Monetary Policy Committee said last month that the recent rise in oil prices, fanned by tension in the Middle East and North Africa, had increased adverse risks to both inflation and growth.
Money markets show just over a 10 percent chance the BoE will raise rates on Thursday, and a 60 percent chance of a rise in May
ECONOMIC HEADWINDS
The economy faces strong headwinds from the impact of government spending cuts, tax rises and low wage growth, which are all likely to undermine domestic demand.
With many households feeling the pinch from higher prices, the BoE has faced growing calls to do more to curb inflation.
However, BoE Governor Mervyn King said last month it would be "self-defeating" to raise rates merely as a gesture to show it was taking inflation seriously.
A majority of BoE policymakers joined him in voting against a rate rise last month, judging that the risk of choking growth by raising rates is more serious than the effects of inflation.
At March's meeting, six members of the nine-strong Monetary Policy Committee voted to leave rates unchanged, Spencer Dale and Martin Weale wanted a 25 basis point hike, and Andrew Sentance voted for a 0.50 percent rise.
Minutes from that meeting showed the MPC feared inflation could soon exceed 5 percent, although they also noted consumer spending had "deteriorated sharply".
The economy's unpredictability was brought into focus this week with two starkly contrasting sets of data.
Figures on Wednesday showed industrial output unexpectedly suffered its biggest fall since August 2009 in February. A survey the day before showed the dominant services sector picked up in March to grow at its fastest pace in more than a year.
More dovish members of the BoE fear that a premature interest rate rise could cause future inflation to undershoot its target, due to risks to growth from public spending cuts, and squeezed household incomes. By contrast, the European Central Bank is seen raising rates on Thursday.
Wavering BoE policymakers may also want to wait for the release on April 27 of first quarter GDP figures before any hike. While a positive reading would be welcome, it may not tell the whole story about the UK recovery, an academic thinktank said in a report on Wednesday.
The National Institute of Economic and Social Research (NIESR), which produces monthly GDP estimates, said its estimate for a 0.7 percent first quarter rise in GDP was flattered by the impact of bad weather at the end of 2010.
"The underlying growth rate is weak. The average rate of growth in the final quarter of last year and first quarter of this year was 0.1 percent," it said.
Please take the time to have a look around my Daughter's website www.daisypalmertrust.co.uk
(MSE Andrea says ok!)
(MSE Andrea says ok!)
0
Comments
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Why? Inflation is way above target.
The desperate debt junkies have been lobbying again.0 -
How do the markets show these percentages?inspector_monkfish wrote: »Money markets show just over a 10 percent chance the BoE will raise rates on Thursday, and a 60 percent chance of a rise in May0 -
inflation is good for debtWhy? Inflation is way above target.
The desperate debt junkies have been lobbying again.
inflation minus the VAT increase is about 2.5% - how is increasing interest rates meant to reduce an inflation rate of 2.5%?0 -
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Graham_Devon wrote: »No it's not. Wage rises over inflation are good for debt.
If we just have inflation, we have less money to service our debt.
and you think that this type of inflation is a long term thing.greenbubble wrote: »only if accompanied by wage inflation ?
greenbubble
good luck with that.
btw have you ever looked at how economic cycles work?0 -
answer the question and leave the insults alone , it does you no favours.
greenbubble0 -
How do the markets show these percentages?
usually a combinataion of forward prices, futures prices and economist pollsPlease take the time to have a look around my Daughter's website www.daisypalmertrust.co.uk
(MSE Andrea says ok!)0 -
Can we stop pasting entire articles into the forums? It breaches copyright laws - you haven't even stated where you took the article from....0
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that wasn't a question - if it was, maybe improve your grammar. it does you no favours.greenbubble wrote: »only if accompanied by wage inflation ?greenbubble wrote: »answer the question and leave the insults alone , it does you no favours.
where was the insult or are you making stuff up?and you think that this type of inflation is a long term thing.
good luck with that.
btw have you ever looked at how economic cycles work?0
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