BoE keeps rates at record low

The Bank of England held interest rates at a record-low 0.5 percent on Thursday, opting to wait for clearer signs of recovery before following the European Central Bank in tightening policy. Although inflation in Britain is almost twice as high as in the eurozone - it hit 4.4 percent in February - Britain's recovery is more shaky than that of France or Germany and the economy unexpectedly lurched into reverse at the end of 2010.
The on-hold verdict will come as relief to the government, which is hoping monetary policy will stay loose to cushion the blow of its fiscal tightening, but may fuel criticism that the BoE has gone soft on inflation. Finance minister George Osborne said again on Thursday that Britain risked a debt crisis like that of Greece, Ireland and Portugal if it failed to cut a record peacetime budget deficit.
The BoE may not keep its powder dry for long, however. Markets are split roughly 50:50 on the chance of a rate hike in May and have fully discounted a quarter-point rise by August. Three of the BoE's nine policymakers are already convinced of the need to raise rates and a robust first quarter GDP estimate, due on April 27, could bring the majority on board.
"News since the March meeting has generally supported the view that the acute weakness in Q4 was a 'one-off' but has not been conclusive in this regard," said Nomura economist Philip Rush. "Pivotal members of the Monetary Policy Committee have indicated they are awaiting confirmation of this before voting in favour of a rate hike." Minutes of the BoE's meeting this week will be published on April 20, giving the vote breakdown for Thursday's decision and policymakers' reasoning. At last month's rate-setting meeting, BoE policymakers viewed the rise in oil prices as having increased the risks to growth as well as the risks to inflation.