Bank set to keep interest rates at record low
Published 29/04/2011 | 08:00
A weak outlook for the economy means the Bank of England is set to keep interest rates at a record low next week - and fresh forecasts may even prompt some policymakers to ditch their minority call for a rate rise.
Rates have been held at a record low 0.5% since March 2009, when the economy was in the depths of its worst recession since World War Two, and a few months ago financial markets saw a strong chance of a May rate rise.
However, a patchy run of economic data - culminating in tepid first quarter growth of 0.5% in GDP - suggests that the economic recovery may be faltering after an unexpected quarter of contraction at the end of last year.
Volatile construction numbers took another downward turn and the service sector is under pressure from falling household disposable income. Just five out of 62 economists polled expect a rate rise next Thursday, and others see the initiative drifting away from the three policymakers who have jointly called for higher rates since February.
Lloyds economist David Page, who sees no rate rise before November, said: "With slower growth arguments on the ascendant ... unless the momentum changes quite dramatically, it's unlikely there will be the dynamism for a rise even by August." While outgoing hawk Andrew Sentance is certain to maintain his call for a 0.5% increase in rates at his final Monetary Policy Committee meeting, newer MPC member Martin Weale and Bank chief economist Spencer Dale may waver.
The Bank's quarterly Inflation Report - published on May 11, but available to the MPC at their May 4-5 meeting - is a common trigger for changes in policy stance on the MPC, both by individuals and collectively. Mr Weale said last week that growth had proved weaker than he had hoped when he first voted to raise rates in January.
And Mr Dale said in a speech a month ago that his call for higher rates was partly based on the assumption growth would be back to normal this year.
This assumption is likely to come under strain in the May Inflation Report, which it is Mr Dale's job to supervise.