* BoE keeps rates at record low for 27th straight month
* Uncertain growth outlook trumps rising inflation
* Probable 7-2 split for steady rates, Broadbent on hold
By David Milliken
LONDON, June 9 The Bank of England kept interest
rates at a record low on Thursday, springing no surprises as
growing signs of economic weakness at home and abroad outweighed
concern about above-target inflation.
The central bank's decision means that rates will stay at
0.5 percent for a 27th consecutive month, and most economists do
not expect rates to rise until the end of the year.
The BoE is taking a gamble that drags on growth from
government spending cuts and a possible weakening in overseas
demand will prove to be more persistent than upward pressures on
inflation from rising commodity prices.
"For now at least most committee members are prepared to
hold fire on interest rates to give the economy more of a chance
to develop forward momentum," said IHS Global Insight economist
"We expect the Bank of England to hold fire on interest
rates until at least November, and we believe that there is now
a very real and increasing likelihood that the MPC will not act
Money markets only fully price in a rate rise for May 2012
-- a sharp reversal from bets on a May 2011 rate rise which were
widespread three months ago.
Inflation is running at 4.5 percent and higher utility bills
are likely to push it to 5 percent later this year, but the BoE
forecast last month that it will fall back to target by early
2013 even if rates stay on hold for most of this year.
Economic output has essentially flatlined over the last
three months of 2010 and the first three of 2011.
Economists expect BoE minutes on June 22 to show a 7-2 split
in favour of keeping rates on hold.
BoE chief economist Spencer Dale and external member Martin
Weale are likely to have stuck with their call to raise rates by
25 basis points. But new MPC member Ben Broadbent -- who
replaces arch-hawk Andrew Sentance -- is not expected to follow
his predecessor's rate hike call.
Data earlier on Thursday showed Britain had a smaller than
expected trade deficit in April, revealing that some of the
economic rebalancing the BoE has called for since the financial
crisis is taking place -- albeit more through a drop in imports
than a rise in exports [ID:nLDE7580YE].
Britain's biggest household goods retailer, Home Retail
Group HOME.L, said sales at its Argos stores fell by 10
percent in the past three months as fearful shoppers stopped
purchases of electrical goods. [ID:nLDE7520D9]
Government spending cuts aimed at largely eliminating a
budget deficit of 10 percent of GDP over the next four years are
starting to take effect, making Britain more reliant on overseas
But strong growth may prove difficult to achieve as surveys
over the past month have shown weaker activity in manufacturing
and services not just in Britain but also in the United States
and the euro zone.
UK industrial output numbers out on Friday are set to make
grim reading, even if part of the weakness of that will be due
to an extra public holiday in April to mark the royal wedding.
(Reporting by David Milliken, editing by Mike Peacock)