Bank of England policymakers are set to hold fire on Thursday as the economy has shown signs of revival and a majority of policymakers may cite the extension of the Funding for Lending Scheme as sufficient action to help recovery.
The nine-member Monetary Policy Committee is expected to retain its key interest rate at record low 0.50 percent and the size of quantitative easing at GBP 375 billion. The announcement is due at 7.00 am ET.
The U.K. interest rate has been at the current record low level since March 2009, with the central bank having so far printed altogether GBP 375 billion at varying quantities to shield the economy from downturn.
Members might assess that more stimulus is not required at this juncture after the extension of the Funding for Lending scheme for one year. Additionally, the government and the BoE altered the scheme on April 24, offering more incentive for banks to boost lending to households and businesses.
Outgoing Governor Mervyn King along with Paul Fisher and David Miles voted for additional stimulus over the last three months but a majority of six members defeated their call, citing risks to inflation and pound.
Economists expect the BoE to resume stimulus measures once Mark Carney takes over as BoE chief in July. Carney is expected to initiate reforms on interest rate path.
There is a big risk that Carney fails to live up to the expectations that have built up for him, Vicky Redwood, chief UK economist at Capital Economics said.
In the first quarter, the U.K. economy dodged recession, averting a triple-dip recession, largely due to an expansion in the dominant service sector. The economy expanded 0.3 percent in the first quarter, offsetting the 0.3 percent contraction in the previous quarter.
The recent Purchasing Managers' data for April added to signs of improvement in private sector activity. The service sector expanded at the fastest pace in eight months on strong growth in new order wins. At the same time, declines in manufacturing and construction activity slowed from the prior month.
On May 15, the BoE is set to release its GDP and inflation projections in its quarterly Inflation Report. In today's meeting, the MPC will have new forecasts available and if the longer-term inflation projections are revised down, it could encourage more quantitative easing, observed IHS Global Insight's chief UK economist Howard Archer.
Inflation continues to hover stubbornly above the 2 percent target, squeezing consumers' purchasing power. The rate was steady at 2.8 percent in March.
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