Mon, Mar 3 2008, 04:43 GMT
http://www.afxnews.com
LONDON (Thomson Financial) - The Bank of England's Monetary Policy Committee is widely expected to leave its benchmark interest rate on hold at 5.25 pct on Thursday.
All but two of the 35 economists polled by Thomson Financial News expect the Bank will remain on hold at this rate-setting meeting, with most forecasting the next move lower will come in May -- by which time the BoE will have the detailed forecasts in the May Inflation Report to fall back on.
While the US Federal Reserve has slashed interest rates by 225 basis points since last summer in a desperate bid to support US growth, the BoE's policy has been more measured. Concerns within the Monetary Policy Committee about inflation, and a potential upward shift in inflation expectations, have so far outweighed fears about the UK's growth outlook, limiting the BoE's loosening to a mere 50 basis points so far.
The Bank rate now stands at 5.25 pct, following quarter-point cuts in December and February.
The vast majority of the economists polled believe this cautious pace will continue, saying the MPC will likely wait until May's Inflation Report for its next move. Any further cuts could well coincide with the August and November Inflation Reports, they say.
"We expect a quarter-per-quarter rate-cutting pace," said Richard McGuire at RBC Capital Markets, noting that the Bank will want to balance the risks of sliding growth and a possible dislodging of inflation expectations.
"Timing the cuts with the inflation reports will help them explain their thinking," McGuire said.
While economists do believe the BoE is concerned about growth prospects, they note the data are yet to show direct evidence of a slowdown.
UK GDP grew 0.6 pct in the fourth quarter from the third, within its 'trend rate' of 0.6-0.7 pct. Meanwhile, preliminary indications for the first quarter are looking less robust but the BoE for one does not see them as catastrophic.
Speaking last week, Rachel Lomax, deputy governor of the BoE, said indicators for the first quarter are mixed "but do not suggest that growth has stalled," and warned that if inflation expectations rise, the MPC will need to constrain demand -- by keeping borrowing costs elevated.
A slew of comments from other BoE rate-setters including Tim Besley and Andrew Sentance have supported the view that the easing cycle will be gradual, suggesting the Bank wants to make sure market expectations for rate cuts are in line with its own.
The BoE, in the February Inflation Report, signalled that as things stand, markets should expect no more than two quarter-point cuts over the coming year. The governor, Mervyn King, stressed it is "odds on" that CPI inflation will breach 3 pct this year.
Two of the economists polled, however, believe the BoE will act early to shore up growth.
Neil Mellor, analyst at the Bank of New York, said that while the BoE will be cautious in the number of cuts it delivers, "it will act now to shore up confidence".
"The economy's at a turning point and the BoE has signalled there is scope for a cut... if it's not this month then next," he said.
Another argument for a cut now is that, despite the BoE's loosening so far, market conditions remain tight because of the credit crunch, said Robert Minikin at Standard Chartered.
"If the BoE fails to cut next week it will be storing up problems for the economy later in the year," he said.
Forecaster March Year-end
4CAST 5.25 5.00
Bank of America 5.25 4.50
Bank of New York 5.00 5.00
Barclays Capital 5.25 4.75
Bear Stearns 5.25 4.50
Capital Economics 5.25 4.50
CEBR 5.25 4.50
CIBC World Markets 5.25 4.50
Commerzbank 5.25 4.75
Commonwealth Bank of Australia 5.25 4.50
Credit Suisse 5.25 4.75
Daiwa 5.25 5.00
Deutsche Bank 5.25 4.50
Dresdner Kleinwort 5.25 4.25
ECU Group 5.25 4.75
Fortis 5.25 5.00
Global Insight 5.25 4.50
HBOS 5.25 4.50
HSBC 5.25 4.50
ING 5.25 4.50
Insinger de Beaufort 5.25 5.00
Investec 5.25 4.75
Investica 5.25 4.25
JP Morgan 5.25 4.75
Lloyds TSB 5.25 5.00
Lombard St Research 5.25 4.50
Merrill Lynch 5.25 4.50
Moody's Economy.com 5.25 4.75
Morgan Stanley 5.25 5.00
Morley 5.25 4.50
RBC Capital Markets 5.25 4.50
RBS 5.25 5.00
Schroders Investment Management 5.25 4.50
Standard Chartered 5.00 4.25
UBS 5.25 4.25
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