8
May
Bank to keep rates steady after election
The Bank of England is all but certain to leave interest rates
at 0.5 percent and not to undertake any further quantitative easing
purchases when it concludes its Monetary Policy Committee meeting
on Monday. Growth data released over the past month has been a
touch weaker than expected, while upward pressures on both consumer
price and producer price inflation have been stronger than
private-sector economists forecast.
Thus there is no overwhelming case for the Bank to make an
unannounced change to interest rates -- which have been at a record
low for over a year -- or to the 200 billion pounds of quantitative
easing purchases which were completed in January.
Moreover, the lack of a clear outcome to Britain's national
election on Thursday is a further reason for the Bank to avoid
unexpected policy action.
None of the 63 economists polled by Reuters expected a change in
policy.
Markets are jittery and the pace of future fiscal tightening to
reduce Britain's record budget deficit is uncertain as the
Conservatives did not win enough seats to implement their faster
tightening plan without reaching a compromise with smaller, less
hawkish parties.
Economists believe it is unlikely that the Bank will publish a
statement to accompany its decision, as these are rare if the Bank
does not change policy. Moreover, Governor Mervyn King will be able
to communicate in much more detail when he holds his quarterly
Inflation Report news conference on Wednesday.
"It's going to be pretty boring," said George Buckley, economist at
Deutsche Bank. "On balance I don't think they will issue a
statement. They will be talking about issues in much more depth
less than two days later."
Nonetheless, there is scope for the Bank to issue a statement if
markets fall off a cliff on Monday due to anxiety about how long it
will take politicians to form a government.
The Bank forecast in February that consumer price inflation would
fall below its 2 percent target late this year, but recent data has
shown a surprisingly strong uptick in CPI to 3.4 percent and
producer price inflation is at an 18-month high.
But first-quarter GDP came in weaker-than-expected at 0.2 percent
after 0.4 percent growth in the fourth quarter, leaving ample spare
capacity to bear down on domestically generated inflation, even if
rising oil and commodities prices and sterling weakness are pushing
up the cost of many imports. Following is a summary of possible
scenarios for the Bank's decision, which will be announced at 12
p.m. on Monday.