Bank of England may freeze rate after ECB cut

LONDON - Agence France-Presse

The Bank of England is expected to keep its key interest rate at a record low 0.50 percent at a meeting this week after the European Central Bank recently shocked markets with a surprise cut.
The BoE’s Monetary Policy Committee concludes a two-day meeting today against the backdrop of weak growth and high inflation in Britain, as well as an uncertain outlook for the eurozone, its key trading partner.
Last week, the European Central Bank’s new chief Mario Draghi surprised investors with a rate cut aimed at calming markets panicked by the eurozone debt crisis.
The ECB’s decision-making governing council voted to lower the rate for its main refinancing operations by a quarter of a percentage point to 1.25 percent.
The Bank of England’s Monetary Policy Committee is not expected to follow suit on Thursday.
“It looks very likely that the MPC will maintain its current stance with the bank rate (kept) at 0.5 percent,” said Philip Shaw, an economist at financial group Investec.
The BoE’s key interest rate has stood at 0.50 percent since March 2009, when the bank also decided to begin injecting £200 billion ($308 billion, 233 billion euros) into the economy under the policy known as quantitative easing.
At its meeting last month, the British central bank took fresh emergency stimulus measures by announcing that it was increasing QE by £75 billion.
Although Britain’s economy grew faster than expected in the third quarter, its outlook remains clouded by the eurozone debt crisis, government cutbacks and high inflation.
Gross domestic product -- the combined value of all the goods and services produced in the economy -- expanded 0.5 percent in the third quarter, the Office for National Statistics (ONS) said last week.
“Recent evidence on the UK economy has been subdued, although as yet it has avoided falling into the category of out and out gloom, in contrast with the newsflow from the eurozone,” said analyst Shaw.
Britain is also faced with high inflation, currently at a three-year peak on surging household energy bills.
Consumer Prices Index annual inflation raced to 5.2 percent in September, compared with a level of 4.5 percent in August, according to the ONS.
The Bank of England’s main task is to use monetary policy to try and keep annual inflation close to 2.0 percent -- far below the current level.
Experts claim that inflation can be fuelled by QE -- a process where central banks create new cash that is used to purchase assets such as government and corporate bonds in the hope of giving a boost to lending and economic growth.