Market divided over next move on rates

Click to follow
The Independent Online

While the Bank of England is expected to leave interest rates unchanged for the fifth month in a row when its Monetary Policy Committee meets this week, City economists are at loggerheads over when the Bank will act.

For the second month running economists at City banks are unanimous that the base rate will be left at its 38-year low of 4 per cent. They also agree the next move will be upwards but widely diverge over when that will happen.

Ross Walker, at Royal Bank of Scotland, said: "Signs of a more assured global recovery will compel the Bank to get rates back to a more neutral setting but the first rise is unlikely to come until August."

However Michael Saunders at Schroder Salomon Smith Barney, which expects a quarter-point or even half-point rate as early as next month, said: "The case for early tightening is becoming stronger."

Out of 25 analysts polled by Reuters, 12 forecast a rise by the middle of this year, four expecting it in May. Nine thought the first rise would come in the second half of this year and four thought the bank would hold off until 2003. Of those who expect a hike this year, nine saw rates ending 2002 at 4.75 per cent, one at 4.25 per cent, six at 4.5 per cent, four at 5.0 per cent and one at 5.5 per cent.

In the minutes of its March meeting, when it voted unanimously to keep rates on hold, the MPC said it wanted to wait for more evidence before moving rates.

The MPC begins its two-day meeting on Wednesday and makes its decision at noon the following day. That will be followed by the European Central Bank, which is also expected to leave interest rates unchanged.