- POSTED: 05 Feb 2014 12:43
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The Bank of England holds a policy meeting this week, with markets waiting to see if governor Mark Carney will alter guidance on lifting its record-low interest rate.
LONDON: The Bank of England holds a policy meeting this week, with markets waiting to see if governor Mark Carney will alter guidance on lifting its record-low interest rate.
The Monetary Policy Committee is widely expected to keep the BoE's main interest rate at a record-low level of 0.50 per cent.
It is widely predicted also to maintain quantitative easing at £375 billion ($613 billion, 454 billion euros), opting against following the US Federal Reserve in tapering stimulus.
"While there is no realistic prospect of a change to the bank rate... attention will be focused on whether the committee makes a statement on its interest rate guidance," said economist Philip Shaw at financial services firm Investec.
Carney took charge of the Bank of England last August and launched a "forward guidance" strategy, under which the BoE will not raise borrowing costs until the unemployment rate falls to at least seven per cent.
He meanwhile last month dampened talk of a rate hike any time soon after Britain's unemployment rate fell faster than expected to 7.1 per cent, a near five-year low point.
Shaw said the BoE needed to send a clear signal to markets and issue new guidance following its latest two-day meeting that concludes Thursday.
"The unemployment rate has now fallen more rapidly than expected... so the motivation for a quick decision is obvious, namely to avoid the need to have a full debate on an increase in the bank rate," he said.
"Any new guidance is deemed to be a monetary policy action which will require the committee to take a vote. Hence there seems a fair chance that this is announced on Thursday."
Martin Beck, UK economist at consultancy Capital Economics, agreed that the meeting could alter the focus of forward guidance presented by the Monetary Policy Committee.
"With the unemployment rate likely to fall below seven per cent soon, February's MPC meeting will set the scene for the demise of forward guidance, at least in its current form," he said.
"Comments by MPC members suggest that the next phase of guidance will not involve reducing the unemployment threshold but instead focus policy on a broader range of labour market indicators."
Beck added that the bank's key interest rate would likely remain on hold "for some time yet", with inflation on a downward path.
Britain's 12-month inflation slowed to two per cent in December, recent official data showed, touching the lowest level for more than four years.
The BoE's main task is to use monetary policy as a tool to keep annual inflation close to a government-set target of two per cent, to preserve the value of money.
Britain's economic recovery is meanwhile gaining traction, in a boost to Prime Minister David Cameron's coalition government ahead of next year's general election.
The economy expanded at the fastest rate last year since before the global financial crisis, despite a modest slowdown in the fourth quarter.
Gross domestic product (GDP) grew by 1.9 per cent in 2013, which was the biggest expansion since 2007, figures showed.
British borrowing costs have stood at 0.50 per cent since March 2009, when the BoE also embarked upon QE to boost lending and growth.