Slim chance of interest rate rise this week

| February 7, 2011 | 0 Comments

According to some economists, there is a very small chance that the Bank of England could raise interest rates when it meets later this week.

The Monetary Policy Committee (MPC) commences its two-day meeting on Wednesday and City bank JP Morgan believes there is a 40% chance that rates will be lifted from their historic low of 0.5% as the central bank is forced to combat stubbornly high inflation.

Interest rates have remained at this historic low since March 2009 - when the economy was in the midst of recession.

High inflation is likely to dominate the meeting. Consumer Price Inflation (CPI) rose to an annual rate of 3.7% in December, up from 3.3% in November.

The figure was much higher than the 3.4% analysts had expected and inflation has now been above its target of 2% for over a year.

Many leading business groups have suggested that inflation could reach 4% – because of the recent VAT hike.

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

Fellow policymaker, Martin Weale, also voted for an interest rate rise at last month’s meeting and other members of the MPC could follow suit.

However, David Kern, of the British Chambers of Commerce, warned against a rate rise saying: “The economy’s still fragile. A premature increase could be damaging.”

Some economists believe if interest rates are not raised this week, a hike is on the cards in the very near future.

Last week, influential think tank, the National Institute for Economic and Social Research (NIESR) said it expects the Bank of England to lift interest rates three times this year.

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

Tags: , , , , , , , , , , two-day meeting, VAT hike

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