The Bank of England is expected to keep interest rates at a record low of 0.5 percent and take no further action on purchasing assets to boost the money supply when it announces its monthly monetary policy decision later Thursday.
Economists anticipate the “wait and see” stance after a month of mixed signals on the economy as Britain makes its hesitant way out of its worst recession in decades.
Statistics out last month showed that the economy is growing again slightly faster than thought after officially exiting recession at the end of last year — but they also revealed that the extent of the 18-month downturn was deeper than previously forecast.
Recent surveys showed manufacturing and services activity picking up pace and consumer confidence at its highest level for two years, but increases in sales tax and heavy snow in the first weeks of the year have hit retailers. House prices also registered their first fall in nearly a year during February.
“We expect the Bank of England to keep interest rates down at 0.5 percent not only on Thursday but through 2010,” said Global Insight chief economist Howard Archer. “It is likely that the economy will go through many more twists and turns over the coming months.”
Hetal Mehta, economist at the Ernst & Young ITEM Club economic consultancy, agreed.
“We do not expect the Bank of England to make any changes to its policy stance when it meets this week,” Mehta said.
Bank of England Governor Mervyn King has recently expressed concerns about the strength and sustainability of the economic recovery.
The bank expects inflation to remain high for the next few months after hitting 3.5 percent in January. But it expects it to fall back below the target level of 2 percent during the second half of 2010.
The latest meeting of the nine-member Monetary Policy Committee also comes amid weakness of the British pound — the currency plunged below $1.50 Monday for the first time in almost 10 months amid mounting concerns that the upcoming general election will not lead to any political party being able to form a government on its own.
Most economists believe that if and when a change is necessary, the central bank is likely to look to restarting its quantitative easing program of buying assets to boost the money supply.
The bank halted the program in February after buying around 200 billion pounds of assets, mostly gilts.