LONDON, Nov 7 (Reuters) - The Bank of England looks set to announce no change to policy on Thursday, focusing the attention of financial markets on next week’s update of the economic forecasts that underpin the Bank’s low interest rates pledge.
The BoE said in August it would not think about raising rock-bottom rates until Britain’s unemployment rate falls to 7 percent, something it predicted would not happen until well into 2016 at the earliest.
But investors bet that unemployment will fall much faster, given the speed of Britain’s economic recovery this year when it has outpaced many other advanced economies.
That is a big turnaround from earlier this year when fears of a return to recession hung over the economy.
It also contrasts with the still-weak economy in the euro zone, where the European Central Bank is likely to consider a cut to interest rates at its monthly policy meeting on Thursday.
Nonetheless, Britain’s economy remains smaller than before the financial crisis, prompting the BoE to announce its rates plan in August as the first big policy change under new governor Mark Carney.
In response to the run of strong economic data, BoE policymakers are widely expected to agree on Thursday on a slightly quicker timescale for the fall in unemployment. In October, they acknowledged that unemployment was falling a touch faster than they had forecast two months earlier.
However, the new forecasts will be kept under wraps until next Wednesday when they will be released as part of the Bank’s quarterly Inflation Report.
Rob Wood, a former BoE economist who now works at Berenberg bank, predicted the Bank would bring forward the date at which it sees a better-than-even chance of reaching its 7 percent unemployment threshold to the fourth quarter of 2015 from the second quarter of 2016, which was its forecast in August.
Many economists said Thursday’s announcement of the Bank’s policy decision - due at 1200 GMT - was likely to be a non-event, given the long-term pledge to keep rates low.
“I don’t think we’ll even get a statement tomorrow so we will be waiting for the Inflation Report and focusing on the unemployment rate,” said Ross Walker, an economist with RBS.
As Britain’s economy picked up speed in recent months, calls for more stimulus from a minority of the BoE’s policymakers faded away. Economists polled by Reuters unanimously expected no expansion of the Bank’s bond-buying programme this month.
Policymakers are also likely to discuss a recent jump in inflation expectations, as measured by polling firm YouGov, which hit a two-year high. A survey of services firms published on Tuesday showed inflation pressures building.
But the BoE is likely to conclude that price risks are not strong enough to “knock out” its low interest rate pledge, as spelled out in the Bank’s forward guidance plan.