Bank of England expected to keep interest rates static

Bank of England policymakers are expected to shrug off inflation jitters and keep interest rates at an historic low today.

Bank of England expected to keep interest rates static

Bank of England policymakers are expected to shrug off inflation jitters and keep interest rates at an historic low today.

While most economists believe the Bank's monetary policy committee (MPC) will hold rates at 0.5%, some experts have warned a small rate hike can not be ruled out.

The number of Bank of England policymakers backing an interest rate hike increased last month as inflation hit 4% in January, and Spencer Dale, chief economist at the Bank, joined fellow MPC members Andrew Sentance and Martin Weale in voting to lift rates.

Howard Archer, chief UK and European economist at IHS Global Insight, said the odds were in favour of rates holding at 0.5% but it was "not a stone dead certainty".

"A small interest rate hike from 0.50% to 0.75% cannot be ruled out given three of the nine MPC members favoured an interest rate hike in February, while there are indications that some other MPC members were close to voting for an interest rate hike in February."

The committee was split four ways last month as Mr Sentance voted for a greater hike than his two hawkish colleagues.

But the majority of the MPC is prepared to wait for further insight into the strength of economic recovery in the first quarter of this year. This follows shock figures which showed the UK economy declined by 0.6% in the final quarter of 2010.

Philip Shaw, chief economist at broker Investec, said he expected a rate-hike in August, rather than the more frequently forecast month of May.

He said: "Given the considerable downside risks, raising rates too early could prove to be a catastrophic misjudgement on the economy.

"Overall, while we suspect that the MPC will not wait until the end of the year to start tightening policy, we judge that it is more likely to wait until August rather than jumping in feet first in May."

Meanwhile, business group the British Chambers of Commerce urged the MPC to show restraint on rates.

David Kern, chief economist at the British Chambers of Commerce (BCC), said lifting rates would be risky in the face of a fragile recovery.

He said: "Given the risks facing the economy, the MPC should postpone interest rate increases until later in the year when the recovery is more secure.

"Premature interest rate increases risk derailing the recovery, and avoiding an economic setback must remain a top priority."

Minutes of the MPC's February meeting showed some members who voted for no change in policy thought the case for a rate hike had "grown in strength".

Bank governor Mervyn King, who has played down the prospect of a rate-hike, has insisted temporary price shocks, including the price of oil, are pushing up inflation.

The MPC said Ben Broadbent, former economist at investment bank Goldman Sachs, will replace arch-hawk Mr Sentance in June.

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