Bank of England to Hold Rates in Improving Economy
The Bank of England was Thursday set to maintain its record-low interest rate and level of cash stimulus pumping around an improving British economy, analyst said.
Markets widely expect the central bank's Monetary Policy Committee to keep its key lending rate at 0.50 percent and maintain its bond-buying quantitative easing (QE) scheme at £375 billion ($604 billion, 444 billion euros) at its October meeting.
Recent positive economic data is set to dissuade the Bank of England from moving to increase the QE amount following a two-day gathering, while its key lending rate should remain on hold until British unemployment falls further.
"There seems not the remotest chance that the Bank of England's Monetary Policy Committee (MPC) will change any aspect of monetary policy at their October meeting," predicted Howard Archer, chief chief UK & European economist at IHS Global Insight research group.
"The already limited likelihood of any further quantitative easing appears to have waned further as the good news on the UK economy has largely kept on coming, while any change in interest rates is clearly a long way off whether or not unemployment ends up falling more rapidly than the Bank of England currently expects."
The International Monetary Fund on Wednesday said it expected Britain's economy to grow by 1.4 percent this year, up from its previous forecast of 0.9 percent. It added that British gross domestic product (GDP) was set to expand by 1.9 percent in 2014 rather than by 1.5 percent.
"This is a marked contrast to the general pattern of (IMF) forecast downgrades, especially across emerging markets," noted Citi economist Michael Saunders.
British GDP grew by 0.7 percent in the second quarter, more than double the 0.3-percent expansion that was witnessed in the first three months of 2013, according to official data.
October's MPC gathering is meanwhile only the second session since it announced a "forward guidance" strategy under new governor, Canadian national Mark Carney.
Under the policy change, any rise in record-low interest rates is to be tied to a drop in British unemployment.
The key interest rate will remain at the current level of 0.50 percent until Britain's unemployment rate falls to at least 7.0 percent, the central bank has said.
The Bank of England's own projections indicate that such a drop from Britain's current unemployment rate of 7.7 percent would not occur for three years, but markets are betting on this happening sooner.
"With a higher growth outlook, we expect the jobless rate will fall to seven percent rather earlier... around the end of 2014 or in early 2015," added Saunders.
The interest rates could in any case rise earlier should British annual inflation remain high above its target rate of 2.0 percent, the Bank of England has itself warned.
The BoE's main task is to use monetary policy as a tool to keep annual inflation close to a government-set level of 2.0 percent, in order to preserve the value of money.
British annual inflation fell to 2.7 percent in August from 2.8 percent in July, recent official data showed.
The BoE kickstarted its QE programme in March 2009, coinciding with its decision to cut its main lending rate to 0.50 percent, where it has stood ever since.
Under QE, the central bank creates cash that is used to buy assets such as government and corporate bonds with the aim of boosting lending -- and economic activity.
Source: Agence France Presse
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