World Economic outlook - UK interest, inflation rate predictions 2012 : Interest rate forecast to stay at record low until May 2012, as Bank of England holds again The Bank of England held interest rates at their record low for a 27th month, as the City bet a rate rise will not arrive until well into 2012.
Despite rising prices – inflation is more than double the 2pc target at 4.5pc – the Bank's Monetary Policy (MPC) has so far refused to raise rates from their 0.5pc low to curb the pace of price rises.
Supporters say that raising borrowing costs would hurt growth as government spending cuts bite and fail to address the pressures from global demand which are pushing up commodity prices. However, some see the Bank as losing credibility through a failure to act.
DeAnne Julius, a former interest rate-setter on the MPC, on Thursday predicted rates will start to rise in November, possibly jumping half a percentage point rather than just the quarter most expect to mark the start of monetary tightening
"There will be some on the Committee who perhaps think they have been waiting too long and are behind the curve," she said.
In contrast, money market investors have pushed back expectations for when rates will start to rise on the basis that the recent spate of weaker economic data makes a move less likely.
Bets on a May 2011 rise were widespread three months ago, but investors now see it as 50/50 as to whether the Bank will move this year. They do not see a rise as definite until May 2012, according to forward contracts on the sterling overnight interbank average.
Even as recently as last month, traders were pricing in two quarter-point rate rises to come by next May, but have since "priced out" one of these, said George Buckley, an economist at Deutsche Bank.
The European Central Bank, which sets interest rates across the eurozone, also left monetary policy unchanged on Thursday, having lifted its main interest rate for the first time since the financial crisis in April – to 1.25pc from 1pc.
As expected, the bank's president Jean-Claude Trichet warned "strong vigilance" is needed over inflation – language which normally signals a rate rise will follow next month. Inflation in the region is 2.7pc, still uncomfortably above the bank's target of just below 2pc.
The worry is that tighter conditions put more pressure on the region's debt-laden nations.
The UK's trade deficit in goods narrowed in April from £7.7bn to £7.4bn, but that was mainly because of a fall in demand for imported consumer goods, rather than a big improvement in British export
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