Belfast Telegraph

Wednesday 3 September 2014

Interest rate freeze expected as party chiefs negotiate

The Bank of England is expected to keep interest rates on hold today amid uncertain political weather.

Policymakers, who delayed their meeting from last week due to the election, are expected to keep the cost of borrowing at the record low of 0.5%.

Efforts to boost the money supply are also likely to stay at their £200bn level of quantitative easing.

But the Monetary Policy Committee will have much to consider as it concludes its two-day meeting - not least the effect of a hung Parliament on the outlook for the UK economy.

Talks between the Conservatives and the Liberal Democrats over the possibility of forming a coalition continued yesterday.

But the two parties have very different views on the timing of tackling the UK's deficit, further adding to the current economic uncertainty.

Another issue at the top of the committee's agenda will be the unexpected stubbornness of above-target inflation as soaring oil prices have pushed up the cost of living.

Policymakers were unnerved last month by a bigger-than- expected rise in the benchmark Consumer Prices Index in March, to 3.4% from 3% in February.

The Bank had expected the rate to fall back sharply later this year and in 2011 as VAT and energy effects fade and the vast amount of slack in the economy kicks in.

But in minutes for the last meeting, rate-setters said they would "continue to monitor developments in inflation expectations closely".

The committee will also have details of the Bank's latest quarterly inflation report - to be published on Wednesday - as it makes its decision, and economists will be looking for any modification of expectations.

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