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Bank set to keep rates at 5.25% Bank set to keep rates at 5.25%
(about 6 hours later)
The Bank of England's rate-setting committee is forecast to keep interest rates at 5.25% at its imminent meeting, amid growing signs of inflation. The Bank of England's rate-setting committee is forecast to keep interest rates at 5.25% later on Thursday, amid growing signs of inflation.
Most analysts are expecting rates to stay on hold after the central bank reduced rates in February by a quarter of a percentage point from 5.5%.Most analysts are expecting rates to stay on hold after the central bank reduced rates in February by a quarter of a percentage point from 5.5%.
The bank faces the twin threat of a cooling economy while prices rise.The bank faces the twin threat of a cooling economy while prices rise.
Data showing that prices firms are paying and charging have risen serve to highlight inflation concerns.Data showing that prices firms are paying and charging have risen serve to highlight inflation concerns.
The Bank is set to announce its decision at noon on Thursday. The Bank is set to announce its decision at noon.
Tight lendingTight lending
Figures released on Wednesday showed strong new service sector growth in addition to rising costs, according to a monthly index from the Chartered Institute of Purchasing & Supply (CIPS).Figures released on Wednesday showed strong new service sector growth in addition to rising costs, according to a monthly index from the Chartered Institute of Purchasing & Supply (CIPS).
"These indicators seriously challenge the case for more aggressive interest rate easing at this stage," said Alan Clarke, UK economist at BNP Paribas."These indicators seriously challenge the case for more aggressive interest rate easing at this stage," said Alan Clarke, UK economist at BNP Paribas.
The Bank of England's inflation report in February suggested that rates would need to come down again once or twice this year to keep inflation in check. The Bank of England's inflation report in February suggested that rates would need to come down once or twice again this year to keep inflation in check.
Food and energy prices keep rising and look set to increase further, thereby fuelling inflationary pressures.Food and energy prices keep rising and look set to increase further, thereby fuelling inflationary pressures.
Vicky Redwood of Capital Economics said: "The combination of faster growth and stronger price pressures shown in February's [Bank of England] report undoubtedly supports the case for the Monetary Policy Committee (MPC) to be cautious about how quickly it cuts interest rates."Vicky Redwood of Capital Economics said: "The combination of faster growth and stronger price pressures shown in February's [Bank of England] report undoubtedly supports the case for the Monetary Policy Committee (MPC) to be cautious about how quickly it cuts interest rates."
All the members of the bank's MPC, which sets rates, had voted for a cut at the last meeting.All the members of the bank's MPC, which sets rates, had voted for a cut at the last meeting.
MPC member David Blanchflower had favoured an even greater cut of 0.5%, rather than the 0.25% that came into effect.MPC member David Blanchflower had favoured an even greater cut of 0.5%, rather than the 0.25% that came into effect.
With banks facing higher costs and finding it harder to access credit, individuals are also seeing difficulties in getting access to mortgages.With banks facing higher costs and finding it harder to access credit, individuals are also seeing difficulties in getting access to mortgages.
"Corporates are suffering too," said Jonathan Loynes, head economist at Capital Economics."Corporates are suffering too," said Jonathan Loynes, head economist at Capital Economics.
"Not only have banks tightened their lending conditions for companies, but the cost of raising funds in the capital markets has begun to rise too," he added."Not only have banks tightened their lending conditions for companies, but the cost of raising funds in the capital markets has begun to rise too," he added.