Arab Today, arab today bank of england in no rush to lift rates
Last Updated : GMT 21:09:51
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Bank of England in no rush to lift rates

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Arab Today, arab today Bank of England in no rush to lift rates

London - AFP

The Bank of England will keep its key interest rate at a record low 0.50 percent on Thursday and maintain the status quo into next year due to Britain\'s flagging recovery, according to economists. BoE policy is in contrast to that of the European Central Bank, which on Thursday is widely expected to deliver its second rate rise since April to fight high eurozone inflation. The BoE\'s Monetary Policy Committee will start its two-day gathering on Wednesday amid fresh fears over the British economy, which is struggling to rebound from recession amid steep public spending cuts and tax hikes. Britain\'s outlook has also darkened in recent weeks as major retailers are shutting shops with the loss of hundreds of jobs in the face of weak consumer demand. \"The Monetary Policy Committee appears to have moved even further away from an interest rate rise over the past month and we still doubt that a rate increase is likely this year or next,\" said Vicky Redwood, an analyst at Capital Economics consultants. British gross domestic product (GDP) expanded by 0.5 percent in the first three months of 2011 but that left activity broadly flat over the past six months after a 0.5-percent contraction in the previous quarter. \"We expect the Bank of England to hold off from raising interest rates until the second quarter of 2012,\" Howard Archer, economist at research group IHS Global Insight, said ahead of Thursday\'s BoE meeting. \"We suspect that most MPC members will maintain the view for many more months to come that higher interest rates are an extra handicap that the fragile economy can well do without.\" Britain\'s weak growth is offsetting worries about high inflation, which at 4.5 percent on an annual basis is the highest level for more than two-and-a-half years. Investec bank economist Philip Shaw forecast that BoE policymakers would adopt a \"wait and see\" stance over rates, despite concerns over the rising cost of goods and services. \"We judge it likely that the MPC will opt to keep policy on hold for a while unless there are much clearer signs that the recovery is struggling and that medium-term price pressures really are not a major issue,\" he said. The BoE\'s main task is to use monetary policy as a tool to keep annual inflation rate close to 2.0 percent, which is far below the current level. In March 2009, when the BoE slashed rates to 0.50 percent, it also launched a radical bond-buying plan, known as quantitative easing (QE), to inject funds into the economy and aid recovery and there is now talk of a possible second round. \"If the economic recovery remains as weak as we expect, QE2 could become the story of 2012,\" said economist Redwood. The BoE pumped £200 billion (224 billion euros, $329 billion) of new money into the British economy by purchasing government bonds and high-quality private sector assets between March 2009 and the start of 2010.

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