Bank of England to sit tight on rates until 2011

07 December 2010 - 06H24

A man uses his mobile phone outside the Bank of England in central London. The country's central bank is tipped to keep British interest rates at a record low 0.50 percent on Thursday at its final monetary policy meeting of 2010 and before an expected slowdown in economic growth.

AFP - The Bank of England is tipped to keep British interest rates at a record low 0.50 percent on Thursday at its final monetary policy meeting of 2010 and before an expected slowdown in economic growth.

As Britons spend heavily ahead of Christmas, and before planned tax hikes and cuts to government spending in 2011, analysts said the BoE was also unlikely to pump up the economy with fresh stimulus under Quantitative Easing.

"The Bank of England is poised to end 2010 without giving any presents to the economy in the form of more quantitative easing (QE) but also not acting like Scrooge by putting interest rates up," said IHS Global Insight analyst Howard Archer.

"While the December Monetary Policy Committee (MPC) meeting ... is likely to see lively discussion among the committee members over the state of the economy and the outlook, it seems inconceivable that it will result in anything other than unchanged monetary policy," he added.

The BoE launched a QE programme in March 2009 in an attempt to drag Britain out of a deep recession sparked by the global financial crisis.

The same month, it slashed interest rates to 0.50 percent, where they have stood ever since.

Under QE, the bank created some 200 billion pounds (236 billion euros, 314 billion dollars) of new money by purchasing government bonds and high-quality private sector assets, but the radical scheme ended earlier this year.

With Britain expected to experience slower growth in 2011, economists are predicting that the BoE could resort to more QE in the months ahead.

"We would not completely rule out the prospect of more QE," said Philip Shaw, an economist at Investec banking group, but only if the British central bank "became seriously concerned that the recovery was running aground."

Britain's economy expanded by a robust 0.8 percent in the third quarter compared with the previous three months, and expanded 2.8 percent compared with a year earlier.

However, the government expects growth to slow more than expected in 2011 and 2012 as sweeping austerity measures begin to bite.

Britain escaped from a record-length recession late last year after a fierce worldwide downturn that was sparked by the global financial crisis but in a bid to slash a record-high public deficit, the coalition government has launched the biggest public spending cuts for decades.

It has also unveiled plans to increase sales tax to 20 percent from the current 17.5 percent on January 4, 2011, a move many expect to dent consumption significantly.