Bank of England considers interest rates

bank of england

The majority of economists do not expect the Bank’s Monetary Policy Committee (MPC) to alter policy.

The UK economy has been shown to be deeper in recession than was thought when the MPC last met a month ago.

But a recent poll of economists by Reuters showed just 25 per cent of those asked thought it would vote for more QE.

UK interest rates have been at a record low of 0.5 per cent for more than three years.

One of the economists polled, Ross Walker, the chief UK economist at RBS, said he thought the probability of a move was more likely than the survey showed, although he still thought the MPC would stick with its current stance.

“Although there’s been a sharper-than-expected deterioration in key business surveys recently and confidence has taken a hammering as euro-strains become more evident, they [the MPC] could hang on a little longer.

“There is not the pressure there usually is, so if it does get more serious and there’s a market clamour to do something they have the chance to move.”

Before the meeting ends a survey of the UK’s service sector purchasing managers – the PMI – is due.

Simon Hayes, an analyst at Barclays Capital, thinks the survey could give the MPC food for thought: “If the services sector PMI were to show a … precipitous fall, the MPC is likely to give serious consideration to a QE expansion.”

Recently the International Monetary Fund’s managing director, Christine Lagarde, called on the Bank of England to lower interest rates further to help the UK weather the eurozone debt crisis, reports The BBC.

The Bank of England has so far agreed to pump a total of £325bn into the economy through QE.

Last week, the Bank’s chief economist, Spencer Dale, said the economy was still feeling the benefit from the QE already conducted by the Bank.

He also predicted the economy would grow this year and said that inflation – which has been falling sharply in recent months and now stands at 3 per cent – needs to come down further.

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