BoE not expected to make a move on interest rates or QE

| January 12, 2011 | 0 Comments

According to economists, the Bank of England is widely expected to keep interest rates on hold this month.

The Monetary Policy Committee (MPC) commences its two-day meeting today and interest rates are expected to be kept at the historic low of 0.5% – where they have been for almost two years.

In addition, analysts expect no movement on the quantitative easing (QE) scheme this month.

Stubbornly high inflation is likely to dominate the meeting. Consumer Price Inflation (CPI) rose to an annual rate of 3.3% in November, up from 3.2% in October.

The figure represents the highest since May 2010 and inflation has now been above its target for a year.

The recent hike in VAT from 17.5% to 20% is also expected to drive inflation up to around the 4% mark over the coming months. This would take inflation to double the Government’s target of 2%.

The CPI inflation rate is a benchmark for the MPC and for seven months now, policymaker Andrew Sentance has voted for interest rates to be lifted from their current historic low to bring inflation down.

However, an increase in interest rates now might be too late to combat inflation, according to economists, and might indicate a sense of panic from the central bank so any monetary policy moves are unlikely at this time.

The meeting is again likely to bring a three-way split with policymaker Adam Posen again calling for an injection of £50 billion via the Bank’s QE scheme to boost the economy.

Economic growth is expected to slow over the medium-term because of the Government’s tough austerity measures, introduced to trim the deficit.

The Bank of England will announce its decision on interest rates and QE tomorrow at 12:00pm.

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