Thursday, at the end of two-day rate setting meeting, the Monetary Policy Committee of the Bank of England is expected to hold the key interest rate at a historical low. The decision is due at 7.00am ET.
The central bank is set to retain its interest rate at 0.5%, the lowest since the central bank was established in 1694. Economists now expect policy makers to step into the second stage of its asset purchase programme that was first initiated in March.
Utilizing the central bank reserves, the BoE is continuing its GBP 75 billion asset purchases programme, which will reach its completion in June. The Treasury had already authorized an increase in the scale of asset purchases to up to GBP 150 billion, out of which GBP 50 billion could be used to purchase private sector assets.
The British Chambers of Commerce had urged the MPC to accelerate the asset purchase programme and announce that they plan to start implementing the second GBP 75 billion installment. David Kern, Chief Economist at BCC said quantitative easing is now the main monetary tool, but the policy must be implemented more forcefully and with greater transparency.
According to the Spring Forecast of the European Commission, the British economy would possibly shrink 3.8% in 2009, before recovering by a slight 0.1% next year. The Organization for Economic Co-operation and Development expects a 3.7% contraction this year after expanding 0.7% in 2008.
Consumer price inflation had fallen to its lowest level in a year in March, with annual inflation at 2.9%. The inflation rate came below the upper limit of the BoE's target band for the first time since March 2008. Commerzbank's economists forecast inflation to remain comfortably above 1%, quashing any residual deflation concerns.
Recent economic readings such as the manufacturing and constriction PMIs are suggesting a decline in the pace of contraction of the British economy, which slipped into its worst recession since 1979 in the first quarter of 2009.
For comments and feedback: contact firstname.lastname@example.org