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BoE Likely To Keep Rates On Hold Amid Chancellor's Mini-Budget Announcement

BoE Rates George Osborne 120313

The policymakers of Bank of England is all set to hold the interest rates unchanged, as economic indicators underline better prospects for growth and employment.

The outcome of the 2-day meeting, which ends on Thursday, is unlikely to gain significant attention as the markets shift their focus to the Chancellor's 2013 Autumn Statement, also due on Thursday.

Although positive developments in public finance positions provide some room for Chancellor George Osborne for policy manouevre, he is likely to stick to his fiscal stance.

The major thrust will be on measures to cut energy bills by around GBP 50 a year. He is also expected to reduce the business rate to reduce cost of struggling businesses.

The nine-member Monetary Policy Committee is widely expected to keep the key rate at 0.50 percent and the asset purchase program at GBP 375 billion.

With November's Inflation Report indicating favorable prospects for growth and inflation, there is little reason for the MPC to change course on policy, Martin Beck, UK Economist at Capital Economics said. For now at least, dovishness seems to be the order of the day for the MPC, the economist added.

The Treasury and the BoE announced last week their decision to end incentives to banks for lending to households through the Funding for Lending Scheme in order to quell concerns over a sharp upturn in the housing market. Osborne is likely to address fears concerning a possible 'housing bubble'.

On the back of economic recovery, Osborne is likely to upgrade the 2013 and 2014 growth outlook for the U.K., but downwardly revise government's borrowing requirements.

The Chancellor is certain to largely stick to his fiscal stance arguing that it has served the country well and it would be a major mistake to change course, said IHS Global Insight Economist Howard Archer.

Nonetheless, Osborne will be keen to leave some room for sweeteners in the budget with general election looming in May 2015, Archer added.

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