Bank no closer to interest rate hike

Published 20th Apr 2011

The Bank of England's Monetary Policy Committee came no closer to increasing interest rates this months as concerns about the strength of the economy outweighed inflation risks, further dimming the chance of a hike before August.

The MPC maintained its 6-3 split in favour of keeping rates on hold this month, according to minutes of its April 6-7 meeting on Wednesday, saying the outlook for inflation had not changed enough to alter their view.

While they said that the path of near term inflation was likely to be higher than the Bank forecast in February, the extent of the recovery from the slowdown at the end of last year was still unclear.

Those who voted to hold rates steady said news on demand and activity over the month had probably been to the downside.

"An increase in Bank rate in current circumstances could adversely affect consumer confidence, leading to an exaggerated impact on spending," the minutes said.

The minutes dropped the line used in March, that some those voting for unchanged rates had thought the case for a rate hike had increased.

Interest rate futures rose as investors pushed back their expectations for a first post-crisis hike. Markets are now pricing in only a 50 percent chance of an increase in August. November futures are only just pricing in a full quarter-point hike.

"It seems that the move towards the hawkish side has lost momentum," said BNP Paribas economist Alan Clarke. "It's aggressively neutral."

The BoE has held interest rates at their record-low of 0.5 percent for more than two years, in contrast to the European Central Bank, which raised borrowing costs earlier this month.

The MPC noted that British services firms and manufacturers showed reasonably healthy growth, but construction and energy production was likely to depress growth in the first quarter.

The Office for National Statistics will publish preliminary growth figures for the first three months on April 27.

The minutes said that despite the drop in inflation to 4 percent in March, there was still a significant risk that inflation would exceed 5 percent.

Andrew Sentance, Martin Weale and Spencer Dale continued to vote for higher borrowing costs. Sentance wanted a 50 basis point hike and the other two a 25 basis point increase.

Source: ' Reuters '

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