Reply #14: Bank of England expected to keep rates steady

[EuroObserver]

Thu Mar 9, 2006 8:08 AM GMT LONDON (Reuters) - The Bank of England looks set to keep borrowing costs on hold for the seventh month running later on Thursday and many economists are no longer so sure British interest rates will fall again this year. All 40 analysts polled by Reuters last week predicted the central bank's Monetary Policy Committee would keep rates at 4.5 percent and many expected a quarter-point cut in May.

News since then that the Halifax house price index jumped 1.4 percent last month and the service sector expanded at its strongest pace in nearly two years has raised doubts about whether the economy really needs another monetary boost.

The global economy is on the mend too. The European Central Bank lifted borrowing costs last week and even the Bank of Japan has ended its five years of super-loose monetary policy. "We would readily acknowledge that, at this stage, neither the dataflow or the commentary from MPC members themselves is friendly to the notion that rates are set to fall in May," said Malcolm Barr, economist at JP Morgan Chase.

The BoE's latest forecasts certainly suggested the central bank saw no urgent need to change policy right now. It predicted growth picking up close to its long-run average and inflation sticking close to the 2.0 percent target.
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MPC member Stephen Nickell, however, has not signed up completely to those benign forecasts. He thinks growth will disappoint and voted unsuccessfully for a rate cut for three months running.
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But economists said the economy could still surprise on the downside. Household spending, for instance, recovered at the end of last year but consumers were still being buffeted by soaring household bills. "It would not take much in the current dataflow -- a weak industrial production report, confirmation of weakness in February retail sales to bring the possibility of an easing back on the agenda," said JP Morgan's Barr. ...more...