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Bank Of England Set To Stand Pat On Rates

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The Bank of England is set to hold its key interest rate steady on Thursday, at the final policy session ahead of the Brexit scheduled on October 31.

Policymakers are likely to retain the interest rate at 0.75 percent and quantitative easing at GBP 435 billion. The announcement is due at 7.00 am ET.

According to the British Chambers of Commerce's economic forecast, official interest rates are expected to remain at 0.75 percent throughout 2019 and 2020, before rising to 1.0 percent in 2021.

Earlier this month, Bank of England Governor Mark Carney said sterling volatility is at emerging market levels. The pound has decoupled from other advanced economy pairs for obvious reasons.

At the Council on Foreign Relations in New York, Carney cautioned that depending on the outcome of Brexit, the financial markets will move substantially in one way or another.

He doesn't see negative interest rates as a tool in the UK.

Carney's term as BoE chief is set to end in January.

In August, the bank had downgraded its growth outlook for 2019 and 2020 to 1.3 percent. Early this week, the BCC lowered its growth forecast for 2019 to 1.2 percent from 1.3 percent and the 2020 outlook to 0.8 percent from 1 percent.

Official data released on Wednesday showed that inflation eased to a 32-month low of 1.7 percent in August as computer games and clothing turned cheaper.

The central bank had projected inflation to fall temporarily below the target over the next six months as energy prices decline.

James Smith, an ING economist, said higher wage costs could feasibly translate into a bit of upward pressure for consumer prices in the medium- term.

This is the main reason why the Bank of England will likely retain its notional tightening bias at Thursday's meeting, and this also suggest it's too early to pencil in rate cuts in the UK, the economist added.

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