LONDON Aug 7 The Bank of England looks likely
to start the ball rolling towards its first interest rate hike
since 2007 when it wraps up a policy meeting on Thursday.
The two-day meeting is likely to have produced the first
split over rates in more than three years, with at least one
member of the Monetary Policy Committee (MPC) voting for higher
borrowing costs, according to a Reuters poll.
But despite strong economic growth, the BoE looks set to
announce at 1100 GMT that it is keeping its benchmark Bank rate
at a record-low 0.5 percent, according to every forecast in a
Reuters poll of 55 economists
Investors will have to wait nearly two weeks to know if the
MPC's unity has indeed come to an end. Minutes of the meeting
are due to be published on Aug. 20.
With Britain's economy set to grow by more than 3 percent
this year, the BoE is widely expected to be the first central
bank in a major developed economy to raise rates.
Markets expect a first hike to come either late this year or
early in 2015. The speculation has pushed up sterling by more
than 10 percent against a basket of currencies in the 12
months to early July, although it has fallen back a bit since
Some MPC members have said the time is coming to ease off on
stimulus after unemployment tumbled to 6.5 percent in the three
months to May from 7.8 percent a year earlier.
But others on the MPC point to very slow growth in wages as
a sign that the recovery in the labour market has further to run
before it starts to push up inflation, which was below-target at
1.9 percent in June.
The BoE is expected to lower its forecasts for wage growth
when it produces quarterly economic projections next week.
Charles Goodhart, a former MPC member, said uncertainty
about how much more unemployment can fall without pressuring
prices meant the BoE should hold its fire for now.
"When you're in uncharted waters, to use that horrible
cliche, probably the best thing to do is not pretend you
actually know what the chart says," he said, speaking at a
policy discussion organised by Fathom Consulting on Tuesday.
Signs that Britain's economy may have lost some of its
momentum may also reduce the likelihood of a rate hike as soon
as this year. Growth in the country's massive services sector
remains strong but manufacturing stumbled in May and June.
Other risks to Britain's recovery include a worsening of
tensions in Ukraine which could hurt demand in Europe, and the
shock if Scotland votes to leave the United Kingdom in a
referendum on Sept. 18.
(Editing by Louise Ireland)