Bank expected to hold rates at 0.5 per cent

Click to follow
The Independent Online

Amid signs that some Bank of England policymakers would like to start raising interest rates from the current 0.5 per cent, there have been calls for the Bank to keep policy relaxed when it announces its latest decision today.

The British Chambers of Commerce warned the Bank's Monetary Policy Committee (MPC) yesterday: "Despite some recent and very welcome signs of improvement in the economy, growth is still weak – particularly in the service sector. The threat of an economic setback is more serious at this early stage of recovery than the risk of higher inflation, so a premature interest rate rise would have damaging consequences."

The unanimous expectation is the Bank will not start to move rates before the end of this year, and even then only marginally. The Mansion House speech by the Bank's governor, Mervyn King, last month was generally taken in the City as a signal that rate rises are remote.

However, there are some signs that the balance of debate within the MPC has been tipping towards modest tightening. At last month's meeting one of the external members of the committee, Andrew Sentance, voted in favour of an interest rate increase of 0.25 per cent, to 0.75 per cent. Last November, Spencer Dale, the Bank's chief economist, opposed an extension of quantitative easing (QE) on the grounds that it might inflate asset prices unduly; but another external member, David Miles, voted for a still larger increase in QE. Other members, such as Adam Posen, have voiced worries about inflationary expectations becoming "de-anchored" from the Bank's 2 per cent target.

The departure of Kate Barker, the Bank's rate setter, in May, and the arrival of the former head of the National Institute of Economic and Social Research, Martin Weale, will not radically alter the balance of opinion within the committee.