Bank of England interest rate preview: Rates set to be held at 0.5%
Thursday, 04 August 2011 09:31
The Bank of England’s Monetary Policy Committee (MPC) will announce their decision today as to whether to keep interest rates at their historically low level of 0.5 per cent for a 29th consecutive month.
Analysts expect the rate will stay at 0.5 per cent for a further month and that base rate will stay at this level into 2012. This month’s meeting is the first since poor second quarter GDP data was released last week that revealed the economy had grown by just 0.2 per cent between April and the end of June.
Earlier this week the PMI index for the manufacturing sector showed the worst decline in activity for two years and the CBI followed the lead of the National Institute of Economic & Social Research (NIESR) in slashing overall economic growth forecasts for the year.
The only relative bright spot was that the construction industry showed solid performance and beat most analysts’ expectations by not contracting in June.
This will be the third meeting at which Ben Broadbent has attended, replacing Andrew Sentance and providing further support to the current consensus view amongst the MPC to keep base rate at 0.5 per cent. His introduction to the committee means a change is less likely.
Indeed, it seems more likely that there will be a change in the policy of quantitative easing in an attempt to kick-start the economy, although there have been no clear signs that this will happen today.
Howard Archer, Chief UK & European Economist for IHS Global said: “The current softness of the economy and serious concerns over the outlook means that not only are unchanged interest rates of 0.50% a foregone conclusion at the conclusion of the August meeting of the Bank of England’s Monetary Policy Committee (MPC) meeting on Thursday, but it is looking ever more probable that the bank will not tighten monetary policy before the middle of 2012.
He added: “Indeed, if the Bank of England does act anytime soon, it seems more likely to be to relax monetary policy through reviving Quantitative Easing which has been on hold since February 2010. However, the indications are that the majority of MPC members are currently wary about going back down the Quantitative Easing path given still significant inflation risks.”
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