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Bank Of England Set To Hold Rates On Improving Economic Activity

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The Bank of England is likely to keep its monetary policy rates unchanged this week after economic data signaled positive momentum after the general election late last year and as political uncertainty linked to the UK's exit from the European Union eased.

The bank is set to maintain its benchmark interest rate at 0.75 percent and the quantitative easing at GBP 435 billion at the final meeting of Mark Carney as BoE Governor.

The central bank is set to announce the outcome as well as release the minutes of the meeting on January 30 at 7 am ET.

The Monetary Policy Committee's quarterly economic analysis and inflation projections are also due on Thursday.

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Policymakers Jonathan Haskel and Michael Saunders called for a 25 basis-point reduction over the last two policy meetings.

Strengthening their case, Carney and Gertjan Vlieghe also suggested that a near term stimulus is required to support sluggish economy and to reduce risks of inflation undershooting target.

Nonetheless, since the election victory of Boris Johnson, clarity on Brexit has improved.

Moreover, official data released last week showed improvement in the labor market and the Purchasing Managers' survey indicated that the private sector returned to growth in January as the service sector expanded at the fastest pace in more than a year.

Manufacturing sentiment hit a nearly six-year high in January and they plan to invest more in plant and machinery, according to a survey conducted by the Confederation of British Industry.

The International Monetary Fund last week maintained its growth forecast for the UK at 1.4 percent in 2020 and expect the rate to improve to 1.5 percent in 2021.

The EY Item Club on Monday upgraded the UK growth outlook for this year to 1.2 percent from 1 percent and that for 2021 to 1.7 percent from 1.5 percent.

The think tank said the decisive nature of the general election result and the resulting clarity on the first stage of Brexit were expected to provide a slight boost to economic activity. The country is set to leave the EU on January 31.

Paul Dales, a UK economist at Capital Economics said it is more likely that rates will stay at 0.75 percent. In fact, the next move in rates will probably be up, but not until 2021.

Andrew Bailey will take charge as the BoE Governor after Carney steps down on March 15.

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