Bank expected to hold rates as confidence grows

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The Independent Online
THE BANK of England is expected to keep interest rates on hold this week following signs of a strengthening in both the economy and the general level of business confidence.

A majority of City analysts believe the Bank's Monetary Policy Committee, which begins its two-day meeting tomorrow, will leave rates unchanged at 5.5 per cent.

A series of stronger-than-expected economic data - including falling unemployment, a bounceback in January retail sales and evidence of improving confidence - has fuelled the City's belief that the Bank will pause for breath.

A new survey by the venture capital group 3i added to the growing body of evidence pointing to a marked improvement in business confidence.

Its quarterly enterprise barometer, out today, revealed growing optimism about the UK's economic outlook.

The proximity of the MPC meeting to the Budget on 9 March has also increased the chances of a no-change rate verdict, analysts said.

The MPC, which will have been briefed on the contents of the Budget by Treasury officials, is wary of sending the market signals about the Chancellor's plans via its decision on rates.

Neil Parker at Royal Bank of Scotland said: "If I were the MPC I would hold fire for the time being."

James Shugg at Westpac said: "The MPC won't believe there has been enough fresh evidence since the previous rate cut to justify a further move at this stage."

However, City analysts said the meeting would be a close call, and most predicted that UK rates had further to fall.

Mr Shugg said: "The MPC majority haven't yet cottoned on fully to the disinflationary trends swirling around the world."

3i's Barometer Index - which measures confidence among the companies in which 3i has invested - rose from minus 133 in the last quarter of 1998 to minus 98 in the first quarter of 1999.