- POSTED: 08 Jan 2014 12:05
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The Bank of England is set to begin 2014 as it has done the previous four years, by leaving its main interest rate at a record-low 0.50 per cent, analysts predict.
LONDON: The Bank of England (BoE) is set to begin 2014 as it has done the previous four years, by leaving its main interest rate at a record-low 0.50 per cent, analysts predict.
Meeting this week, the BoE is also expected to maintain its level of cash stimulus pumping around the economy at £375 billion ($616 billion), as policy-makers await the extent of Britain's growth recovery amid more austerity.
Finance minister George Osborne on Monday warned that Britain needs to find an extra £25 billion of painful cuts after next year's general election.
That follows £17 billion in planned cuts this year and £20 billion in 2015.
Despite continued government austerity, Britain cemented its economic growth recovery in the second half of last year.
Britain's gross domestic product (GDP) grew by 0.8 per cent in the third quarter of 2013 -- the fastest pace for three years -- and the country's unemployment is falling faster than expected, according to the latest official data.
British unemployment stands at a four-year low of 7.4 per cent.
The Bank of England, under governor Mark Carney, has stated that it will not raise borrowing costs from 0.50 per cent at least until the unemployment rate falls to seven per cent, under a "forward guidance" policy.
"While unemployment is falling swiftly towards the seven percent threshold above which the Monetary Policy Committee has pledged to keep official interest rates on hold, it remains unlikely that rates will rise in 2014," said Jonathan Loynes, chief economist on Europe at the Capital Economics research group.
"And with... inflation on track to fall below the two-percent target in 2014, the case for raising interest rates remains weak," he added.
Britain's 12-month inflation rate slowed to 2.1 per cent in November, the lowest level for four years, as food and energy price rises slowed.
The BoE's main task is to use monetary policy as a tool to keep annual inflation close to a government-set level of 2.0 per cent to preserve the value of money.
Meanwhile the central bank's continued stimulus, or quantitative easing (QE), programme, has not kept inflation at high levels.
The BoE launched QE in March 2009, coinciding with its decision to cut its main lending rate to 0.50 per cent, where it has stood ever since.
Under QE, the central bank creates cash that is used to buy assets such as government and corporate bonds with the aim of boosting lending -- and economic activity.
Standard and Poor's recently confirmed its top 'AAA' credit rating for Britain, noting the government's commitment to reducing its budget deficit even if the deep austerity measures continue to slash public sector jobs.
Offsetting these losses has been a pick-up in jobs created by the private sector.
S&P has meanwhile downgraded the European Union's long-term credit rating one notch, from "AAA" to "AA+", citing weaker credit worthiness among the bloc. Britain is part of the EU but not the single currency eurozone bloc.
The ratings agency said it expected average annual British GDP growth of more than 2.0 per cent during 2013-2016 but S&P has said that its outlook on the long-term rating of Britain remains negative.
Downgrades by ratings agencies can cause a country to pay higher interest on its debt. Meanwhile, at just 0.50 per cent, the Bank of England's main interest rate is good for borrowers but has led to retail banks offering poor returns on savings.