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Bank of England to Keep Key Rate Unchanged as Outlook Darkens

An eighth straight unanimous decision may mask more diverging views among the MPC.

Bank of England to Keep Key Rate Unchanged as Outlook Darkens
Copies of the Bank of England (BOE) quarterly inflation reports sit on a table ahead of a news conference at the Bank of England in the City of London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

(Bloomberg) -- Bank of England policy makers will probably keep policy on hold on Thursday despite warnings that interest rates will have to rise in the future.

All but one of the 20 analysts surveyed by Bloomberg predict a unanimous vote to keep the benchmark at 0.75%. Political turmoil, a lack of clarity about Britain’s departure from the European Union, weaker-than-expected economic data and signs the U.S. Federal Reserve is on course to reverse its recent hiking path, provide reasons to stay their hand.

An eighth straight unanimous decision may mask more diverging views among the MPC though. In a speech Monday, Michael Saunders indicated that he sees no need to wait until all political uncertainty around Brexit is resolved before raising rates, while chief economist Andy Haldane said the time is nearing when a hike is needed to keep inflation pressures in check.

On the other side of the argument, Gertjan Vlieghe said global and domestic risks had intensified in the past month and the outlook “has got a little worse” since the MPC’s last decision and forecasts in May. Then, Governor Mark Carney said the BOE stands ready to raise rates by more than investors are predicting if the U.K. successfully manages a smooth Brexit.

Figures this week showed a larger-than-expected slowdown in growth in April, and the National Institute of Economic and Social Research predicts the economy is likely to contract 0.2% in the second quarter.

What Bloomberg Economist Say

“We continue to expect growth to remain subdued for the rest of this year, forcing the Bank of England to keep interest rates on hold until mid-2020.”

Dan Hanson, economist

Meanwhile, purchasing managers indexes for May showed contractions in construction and manufacturing, and retail sales in a slump, leaving the economy “close to stagnation,” according to IHS Markit. Reports on house prices, inflation and retail sales are all scheduled for release ahead of the BOE’s announcement.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net;Harumi Ichikura in London at hichikura@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint, Jill Ward

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