Bank of England to leave rates on hold

Published on Saturday 5 December 2009 13:13

THE Bank of England's Monetary Policy Committee seems highly unlikely to deliver an early Christmas present for the economy this week, according to a leading economist.

Howard Archer, chief UK & European economist at IHS Global Insight, said both quantitative easing and interest rates seem odds on to be left unchanged. This is likely to be the case for many months to come.

While the Bank of England appears to be keeping all options open, Archer suspects that the majority of MPC members would prefer not to increase QE again following November's 25 billion extension to 200bn unless the economy suffers a serious relapse in 2010.

However, any policy tightening clearly remains a long way off given that significant, sustainable recovery remains very far from certain, and he expects interest rates to stay down at 0.50 per cent until at least late 2010 and very possibly beyond.

He said that with the economy highly likely to be finally returning to growth in the fourth quarter and the extension to the QE programme planned to last through to February, he expected the MPC to "sit tight" this month.

He said Bank of England's policymakers still had major worries that recovery could be held back over the medium term by muted lending as banks repair their balance sheets. Consumers are also looking to save more as a consequence of higher debt levels.