Rates predicted to stay at 0.5 this week

An economist said there is no doubt that the Bank of England's Monetary Policy Committee will keep interest rates at 0.50 per cent at its October meeting this week.

Howard Archer from Global Insight said: “We also suspect that the MPC will keep the amount being spent on Quantitative Easing (QE) at GBP175 billion.”
He added he does not expect the October meeting of the Bank of England's Monetary Policy Committee to result in any major policy changes.

“Pressure for immediate further Bank of England action has been alleviated by the economy's probable return to growth in the third quarter, latest Bank of England survey evidence suggesting that banks will increase their lending in the fourth quarter and the fact that the current programme of asset purchases under the Quantitative Easing policy will last until the November MPC meeting.”
 
Although the MPC has become modestly more upbeat about the near-term outlook for the economy, the committee nevertheless continues to have serious concerns about the strength and sustainability of the upturn, particularly given the ongoing need and desire for financial institutions, households and companies to improve their balance sheets.

Global Insight said: “Recent indications from MPC members also indicate that they are still very worried over the lack of bank lending, particularly to small and medium-sized firms.”

However, he said the MPC is likely to stay in "wait and see" mode this week.