BoE fore­cast to raise in­ter­est rate

The Pak Banker - - Front Page -

LONDON: The Bank of Eng­land will start rais­ing in­ter­est rates within six months to curb in­fla­tion, the Con­fed­er­a­tion of Bri­tish In­dus­try said. The Mon­e­tary Pol­icy Com­mit­tee will in­crease its bench­mark in­ter­est rate by a quar­ter-point ev­ery three months from the sec­ond quar­ter of 2011 un­til mid-2012, the London-based group said in a re­port to­day. It will then step up the pace of in­creases to end that year with a rate of 2.75 per­cent.

"The per­sis­tent strength of en­ergy and com­mod­ity prices is a grow­ing con­cern, as it is likely to mean that in­fla­tion does not fall back quite as sharply as many hope," said CBI Chief Eco­nomic Ad­viser Ian McCaf­ferty. "Growth at the start of 2011 is likely to be very slug­gish, al­though we do ex­pect the re­cov­ery it­self to stay on track."

Bank of Eng­land pol­icy mak­ers re­main di­vided over the need to curb in­fla­tion or in­crease bond pur­chases to coun­ter­act the ef­fect on the econ­omy of the govern­ment's fis­cal squeeze. In­fla­tion ac­cel­er­ated to 3.3 per­cent in Novem­ber, sur­pass­ing the govern­ment's 3 per­cent limit for a ninth month. Con­sumer-price growth will "sig­nif­i­cantly ex­ceed" the cen­tral bank's 2 per­cent tar­get next year and only fall "just be­low" the goal in the first quar­ter of 2012, the CBI fore­cast. In­fla­tion will end 2012 at 2.4 per­cent, it said.

The CBI said the econ­omy will grow 0.6 per­cent in the cur­rent quar­ter be­fore slow­ing to 0.2 per­cent in the first three months of 2011. Growth will av­er­age 2 per­cent in 2011, it said, main­tain­ing a Septem­ber pre­dic­tion, and ac­cel­er­ate to 2.4 per­cent in 2012. It also fore­casts house prices will fall about 4 per­cent next year and re­main un­changed in 2012.

The Bank of Eng­land left its emer­gency bond-pur­chase plan un­changed at 200 bil­lion pounds ($310 bil­lion) this month and kept the bench­mark rate at a record low 0.5 per­cent.

MPC mem­ber Adam Posen, who has called for the bank to in­crease stim­u­lus, said last week pol­icy mak­ers shouldn't "over­re­act" to in­fla­tion, as it may slow be­low 1 per­cent in two years. -PB News

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