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News Analysis: First interest rate adjustment of BoE expected in early 2015

English.news.cn   2014-09-04 22:41:50

LONDON, Sept. 4 (Xinhua) -- The Bank of England (BoE), the central bank of Britain, Thursday voted to maintain its benchmark interest rate at 0.5 percent.

The bank also voted to maintain the stock of purchased assets, or quantitative easing policy scheme, at 375 billion pounds (618 billion U.S. dollars).

It is the 66th successive months that interest rates stay at historical low level. The decision is within the market's estimation consensus, and most of economists here in London maintain their expectation on the timing of BoE's first interest rate raise in early 2015.

During the monetary policy meeting last month, however, two out of the nine-member Monetary Policy Committee (MPC) of BoE voted to raise benchmark interest rate. It was the first decision split of the MPC in more than three years.

Samuel Tombs, Senior British Economist at Capital Economics, commented in an analysis piece that the recent weakness of inflation and wages alongside the cooling of the housing market suggests that the BoE will be cautious and will only begin to raise interests rates gradually next year.

British inflation rate dropped to 1.6 percent in July, markedly lower than the 1.9 percent a month earlier, data showed by the Office for National Statistics (ONS).

Martin Beck, senior economic adviser to the EY ITEM Club, said in a note: "Recent activity surveys, a further drop in the unemployment rate, and revisions to GDP data that show the UK economy has enjoyed a more rapid recovery than previously believed, may have emboldened those advocating a rate rise."

Nonetheless, "with low inflation affording the MPC the luxury of time and pay growth turning negative in the latest data, we continue to expect that rates will stay put until 2015," he added.

Rain Newton-Smith, Director for Economics of the Confederation of British Industry (CBI), also said: "Despite last month's difference in opinion among MPC members, it's no surprise that there's been no change to interest rates."

The industry body remains of the view that the first rate rise will come in the first quarter of next year, as their expected inflation would remain below two per cent and that wage growth is likely to remain relatively subdued for the rest of the year.

In its quarterly Inflation Report that released last month, the BoE halved its forecast in its quarterly Inflation Report for the average wage growth this year, expecting a mere 1.25 percent increase.

The minutes of today's monetary policy meeting will be published on Wednesday 17 September, said BoE. (1 pound=1.65 U.S. dollars)

Editor: yan
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