Bank of England set to sit tight on rates

GMT 03:00 2014 Thursday ,05 June

Arab Today, arab today Bank of England set to sit tight on rates

Bank of England building in London
London - AFP

The Bank of England is likely to keep its main interest rate at a record-low level on Thursday, but is slowly moving towards raising borrowing costs after a years-long pause.
The institution's Monetary Policy Committee (MPC) is odds-on to keep the rate frozen at 0.50 percent at the conclusion of a two-day meeting as low inflation in Britain offsets the country's solid economic growth and falling unemployment, according to analysts.
The Bank of England (BoE) is forecast also to maintain its quantitative easing (QE) cash stimulus programme at £375 billion ($628 billion, 461 billion euros).
"Views among MPC members appear to be diverging. Bank rate is set to remain on hold in June, but the chances of a split vote sometime in the next few months are growing," said analyst Martin Beck at consultancy Oxford Economics.
Policymaker Martin Weale last week broke ranks to declare that Britain needed to start raising rates gradually to avoid sharp and painful hikes in the future.
Minutes from the MPC's May gathering showed that the decision to keep rates on hold was "becoming more balanced" for some members of the nine-strong committee panel.
Analysts saw this as a signal of an increase in support towards tightening borrowing costs amid the nation's brightening economic outlook.
"If you want to have baby steps you do have to start sooner," Weale told the Financial Times.
"The question is: how close are we getting to 'soon'? Of course we can never be sure, but the economy... has sustained fairly rapid growth in demand."
British rates have stood at 0.50 percent for more than five years to aid economic recovery from the global financial crisis of 2008.
The economy powered ahead in the first quarter of this year with gross domestic product growth of 0.8 percent, but there remain stubborn concerns about a robust housing market amid signs of a potential bubble in London.
In another bright spot, British retail sales surged 6.9 percent in April compared with a year earlier, recent official data showed.
That was the fastest rate for a decade and persuaded HSBC bank to lift its second-quarter growth forecast to 0.9 percent from 0.7 percent.
- Britain vs eurozone -
Although Britain is a member of the European Union, it is not part of the eurozone, whose interest rates are set by the European Central Bank.
Financial markets are betting on an interest rate cut from the ECB on Thursday as low inflation, a strong euro and anaemic credit finally spur it into action.
The ECB has held its key interest rates steady at their current all-time lows since November, repeatedly promising to act if necessary to avert deflation in the 18 countries that share the euro.
Inflation in the eurozone slowed last month to financial crisis levels, putting extra pressure on the ECB to act to fight a growing threat of deflation, data showed on Tuesday.
Eurozone inflation fell to 0.5 percent in May, the same level as in March and erasing a bump to 0.7 percent in April.
In Britain, 12-month inflation accelerated in April to 1.8 percent -- the first gain for 10 months, lifted by the later timing of Easter. But the rate remains below the BoE's target of 2.0 percent.


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