LONDON : The Bank of England will announce its latest interest rate call and economic forecasts this week against a backdrop of domestic political uncertainty and global financial market turmoil.
The British central bank’s monetary policy committee (MPC) is odds-on to maintain its key lending rate at a record low 0.5-percent on Monday, amid unease about the nation’s inconclusive general election result.
Opposition Conservatives, led by David Cameron, are aiming for a power-sharing deal with the third-placed Liberal Democrats, after knife-edge elections left Britain with a hung parliament and no outright winner.
“We think that the MPC is likely to stand pat once again, not least because of the considerable uncertainty about the course of fiscal policy,” said analyst Vicky Redwood at Capital Economics.
The pound plunged to a 13-month low against the dollar on Friday on concerns about any new administration’s ability to curb the record public deficit without a parliamentary majority.
“The government situation obviously also argues for caution on behalf of the bank,” added Lloyds Banking Group economist Kenneth Broux.
“We know that if the Tories get in, a fiscal squeeze may come sooner rather than later.
“This will bear down on the outlook for growth, so again I am reasonably confident that the Bank will play it fairly safe and not over-commit and future looking statements as it awaits fiscal plans of the next government.”
Britain’s debt concerns have been amplified by the Greek financial crisis, which has sparked global markets chaos and is threatening to engulf the eurozone.
“The sovereign debt crisis will totally overshadow markets again next week, but should not have a major impact on the way the BoE delivers its rate decision and inflation report,” added Broux.
“The sharp fall in equities … is a bad sign and will force the BoE to navigate carefully for what it says about the inflation and growth outlook for this and next year.”
The BoE’s rate-setting panel began a two-day monetary policy meeting last Friday, one day later than normal due to the general election on Thursday.
Last week’s vote sparked Britain’s first official hung parliament since 1974, with the main opposition Conservatives garnering the most seats but with no overall majority.
“The committee is at least likely to want to wait for any news on the likely path of fiscal policy that emerges in the weeks immediately after the election,” added Redwood.
“Remember that the Conservatives have pledged to hold an emergency budget within 50 days of gaining power.”
An emergency budget would address the thorny topic of the burgeoning public deficit, which has ballooned in the wake of the banking-sector bailout and a deep recession that ravaged taxation revenues and lifted state spending.
Meanwhile, BoE policymakers will likely have advance copies of the bank’s latest economic forecasts, which are due for publication on Wednesday.
Most economists predict the BoE will maintain currency policy as it seeks to help cement Britain’s fragile economic recovery from a deep downturn.
In the bank’s last quarterly report, published in February, the BoE forecast that the economy faced the prospect of a “gradual” economic recovery this year.
The BoE had predicted that year-on-year growth would probably be about 3.5 percent by the end of 2010. That was lower than the 4.0 percent expansion which was forecast in November.
The bank also said that it expected annual British inflation to peak at about 3.5 percent this year, before falling back below its 2.0-percent target level.
In order to revive the economy, the Bank of England cut interest rates to a record low in March 2009, and has pumped out 200 billion pounds (222 billion euros, 320 billion dollars) under so-called quantitative easing (QE).
The bank froze its radical policy of pumping massive amounts of new money into the economy in February but did not rule out further aid.
Britain’s economy grew by a weaker than expected 0.2 percent in the first quarter of 2010.
That marked a pronounced slowdown from 0.4-percent expansion in the fourth quarter of 2009, when Britain emerged from a record-length recession that lasted for six successive quarters
No comments:
Post a Comment