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BoE To Hold Fire; Likely To Raise GDP Forecast

BOE Carney 110316

The Bank of England is set to sit tight on monetary policy on Thursday as the U.K. economy weakened less than estimated after the 'Brexit' vote and the weak pound is driving inflation higher.

The central bank is set to keep its key interest rate at a record low 0.25 percent and the asset purchase plan at GBP 435 billion. The announcement is due at 8.00 am ET.

In August, the bank had announced a rate cut and a massive quantitative easing expansion to shield the economy from the shock from the 'Brexit' vote late June.

Governor Mark Carney has come under fire for being too pessimistic after the 'Brexit' vote. Late last month, he was asked to justify the loosening stance adopted in August at the parliament, when he said policymakers cannot ignore the recent sharp drop in the sterling.

Settling questions about his term in the central bank, Carney this week confirmed he will stay as BoE chief until June 2019, which is two years short of the expiry of the term. He expressed wish to guide the monetary policy through the period of crucial 'Brexit' talks.

Prime Minister Theresa May has said the Article 50 will be triggered by late March next year, starting exit negotiations with the EU.

The sterling has weakened recently over the fears of a tough position that might be taken over the course of 'Brexit' talks. Inflation has shown signs of acceleration as the weakness in the sterling boosted import prices.

The official GDP data and survey results suggested that the economy has performed better than the bank's forecast.

The BoE had anticipated growth to ease to 0.3 percent in the third quarter, but it slowed only to 0.5 percent, according to official estimates last week.

Nonetheless, subdued consumer spending due to higher prices and weak investment are set to weigh on growth prospects.

The bank will reassess its forecasts made in August based on the latest data, in its quarterly Inflation Report to be released along with the monetary policy statement and minutes today.

Carney is set to hold a press conference at 8.30 am ET.

IHS Global Insight economist Howard Archer still believes that the BoE is more likely than not to end up taking interest rates down to 0.10 percent - and suspect this will probably happen sometime during the first half of 2017.

Archer said the bank would only likely consider an action like a rate hike if the pound's drop became sharp and disorderly.

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