During its monetary policy meeting Thursday, the Bank of England (BoE) is widely expected
to keep its benchmark interest rate unchanged at 0.5 percent — a level
it has maintained for over seven years. Persistent worries over global
economic headwinds and a looming uncertainty vis-Ã -vis the U.K.’s future
in the European Union are likely to offset any demands for a rate hike
generated by the recent spike in inflation.
Last month, all nine members of the bank’s Monetary Policy
Committee voted to keep the rates on hold, citing “subdued” core
inflation.
“Returning inflation to the 2 percent target requires
balancing the drag from external factors against increases in domestic
cost growth. Fully offsetting that drag over the short run would, in the
MPC’s judgment, involve too rapid an acceleration in domestic costs,
one that would risk being unsustainable and would lead to undesirable
volatility in output and employment,” the BoE said in the minutes of the March 16 policy meeting.
According to official data
released earlier this week, inflation in the U.K., as measured by the
consumer price index, rose to a 15-month high of 0.5 percent in March —
up from 0.3 percent in February.
However, the figure is still way below the central bank’s 2 percent target, and recent gauges of the domestic manufacturing and services sectors have indicated that growth in the country remains sluggish.
The U.K. is scheduled to hold a referendum on June 23 on the so-called Brexit. According to the International Monetary Fund
(IMF), if the country decides to leave the 28-nation European Union, it
could cause “severe regional and global damage.” The international
lender, which slashed its forecast
for global economic growth to 3.2 percent in 2016 — down from its
previous estimate of 3.4 percent — also cut its U.K. growth forecast, to
1.9 percent in 2016 — down from its January estimate of 2.2 percent.
“Why make an uncertain situation even more uncertain? I
think they’ll hold fire a while,” Martin Beck, senior economist at
Oxford Economics, told MarketWatch.
“We think inflation will get to 1 percent by the end of the year, and
it is very difficult for the bank to raise rates when inflation is so
far below target. So we think — Brexit or no Brexit referendum — it
would still be a long time before rates go up.”
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