Bank of England to keep monetary policy

The Bank of England is set to keep monetary policy on hold this week as Britain heads for its best quarterly economic performance for six years

Bank of England governor Mark Carney
Bank of England governor Mark Carney

The Bank of England is set to keep monetary policy on hold this week as Britain heads for its best quarterly economic performance for six years.

Policymakers have already pledged to keep rates on hold at 0.5% until unemployment falls to 7% and are also not expected to increase their £375 billion quantitative easing drive in Thursday’s decision as the UK basks in further economic cheer.

In the latest raft of robust figures, the closely watched Markit/CIPS purchasing managers’ index (PMI) last week showed the dominant services sector grew at its fastest pace for 16 years in the third quarter of the year.

House price data from Halifax also revealed a 6.2% year-on-year increase in September in the biggest hike since 2010 as the Government’s Help to Buy initiative continues to send would-be buyers flocking into the market.

Economists are now pencilling in growth of around 1.2% for the third quarter - a level not reached since the third quarter of 2007.

It would mark a sharp improvement on the 0.7% growth in the second quarter of this year.

Official data from the manufacturing and construction sectors due this week are likely to see the optimism continue.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The already limited likelihood of any further Quantitative Easing (QE) appears to have waned further as the good news on the UK economy keeps coming.”

He added: “The bar for any more QE now looks to be very high.

“It will likely only occur if the economy loses substantial momentum over the coming months, or if there is major financial turmoil and a sharp upward move in market interest rates when the US Federal Reserve finally starts to taper.”

While the strength of the recovery has increased pressure on the Bank’s rates pledge, America’s partial government shutdown and its decision to delay QE tapering has slightly pushed back the market’s expectation for the first UK rate hike. But the City is still expecting the Bank to raise historically low interest rates by early 2015.

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