Thursday preview: BoE to keep interest rates unchanged

The Bank of England is expected to hold fire on interest rates at Thursday’s policy decision amid low inflation and weak wage growth.

The central bank is forecast to keep interest rates at 0.5% and the asset purchase programme at £375bn. Many analysts have pencilled in a May rate hike.

UK inflation rose to 0.1% in November, turning positive for the first time in four months, according to the Office for National Statistics. However, it remains well below the BoE’s 2% target.

The ONS last month also revealed that wage growth slowed to 2% in the three months to October from the 2.4% seen in the previous quarter.

Weak global growth amid a slowdown in China’s economy and the effect of a strong pound on demand for exports, also adds to the BoE’s case to keep interest rates unchanged.

“Ahead of the Bank of England’s January interest rate decision on Thursday and the release of the minutes of the Monetary Policy Committee’s meeting, we are leaning heavily towards putting back our expectations of the first interest rate hike (from 0.50% to 0.75%) from May to August,” said Howard Archer, chief UK and European economist at IHS Global Insight.

“This is primarily a consequence of the fact that we now believe consumer price inflation will stay lower for longer, and we have become warier about UK GDP growth prospects. Specifically, we have trimmed both our forecasts for UK GDP growth in 2016 (to 2.2% from 2.4%) and for consumer price inflation (to 0.8% from 1.1%). We now assume that consumer price inflation will not get up to 1.0% until the third quarter.”

BoE Governor Mark Carney has said any interest rate rises would be gradual and limited.

The BoE’s policy announcement comes on the heels of Chancellor George Osborne’s warning last week that the UK faces a “dangerous cocktail of new threats” to its economy from abroad. He pointed to China’s slowing economy, a plunge in oil prices and geopolitical tensions in the Middle East.

Thursday 14 January

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