Bank of England to freeze rates

LONDON. – The Bank of England is expected to freeze record-low interest rates tomorrow amid Britain’s strengthening economic recovery, but could signal more stimulus moves, analysts said. The two-day meeting of the Monetary Policy Committee, starting today, will be the second under governor Mark Carney and follows recent news that the British economy rebounded with 0,6 percent growth in the second quarter. Most economists expect the MPC will maintain its so-called quantitative easing (QE) stimulus amount at £375 billion, and keep interest rates at a historic low of 0,50 percent.

Canadian Carney made an impressive debut in June when he united the nine-member MPC panel in their decision to refrain from injecting more stimulus cash. The committee had been previously split on the issue since late 2012. Minutes from the June meeting revealed, however, that policymakers would study other ways of helping to stimulate fragile economic growth.

In addition, the MPC is also mulling the possible use of “forward guidance”, a policy which involves giving a clearer indication of how interest rates might evolve in the short to medium term. This policy could be tied to the unemployment rate, in a similar way to the US Federal Reserve.
However, an announcement on this was not expected until August 7, when the bank will also issue its quarterly economic forecasts.

“The main event this month is likely to be the announcement of formal forward guidance,” said Capital Economics analyst Vicky Redwood.
“We expect the Monetary Policy Committee to commit to keep official interest rates low until an unemployment threshold is breached.

“Any commitment will be announced alongside the inflation report today so the meeting itself could pass without event.
“That said, there is an outside chance of a resumption of QE or the start of some other policy action – for example, on bank lending.”
Carney was greeted with welcome news last week that Britain’s economic recovery accelerated in the second quarter, but finance minister George Osborne insisted that the coalition government would stick to its tough austerity plans. Gross domestic product grew by 0,6 percent in the three months to the end of June. This was compared to a gain of 0,3 percent in the previous quarter and is the first time since 2011 that Britain has achieved back-to-back quarterly increases.

“The August meeting of the MPC is unlikely to see any change in monetary policy ahead of a highly probable decision to move to forward guidance on monetary policy a week later,” said IHS Global Insight economist Howard Archer.

He added: “The July MPC meeting came across as somewhat of a holding operation before the major decisions are taken in August. And it was evident that the recently improved news on the economy had given the MPC more breathing space.”

In recent years, Britain’s economy has been battered by the combined impact of government austerity measures and the eurozone’s long-running sovereign debt crisis.

For Britain, a member of the European Union but not a member of the single currency bloc, the eurozone is its main trading partner. – AFP.