3Q CENTRAL BANKING: England Expected to Keep Interest Rates Steady

 
  By Jason Douglas 
 

        The Bank of England is expected to keep its benchmark interest rate at 0.5% in the third quarter to help bring inflation in the U.K. back up to target.
        Annual inflation was just 0.1% in May after briefly turning negative in April, the first instance of prices falling year-on-year in the U.K. for more than 50 years. The BOE is tasked with keeping the annual rate at 2%-- and looks set to undershoot its goal for months to come.
        The recent plunge in oil and food prices is largely to blame. Officials led by Governor Mark Carney have said these effects should soon start to fade, but they nevertheless want to see faster growth in wages and other domestic costs to ensure they hit their target.
        Their latest forecasts, published in May, show annual inflation will hit 2% by the second quarter of 2017 provided interest rates rise around the middle of next year. The International Monetary Fund expects the U.K. to grow 2.7% in 2015, quicker than any other advanced economy bar the U.S. Unemployment in Britain continues to fall.
        Economists expect the improving outlook will soon foment a split on the nine-member rate-setting Monetary Policy Committee between a majority content to keep policy steady and a minority eager to start raising rates sooner rather than later. Martin Weale and Ian McCafferty, who were voting for higher rates as recently as December, are expected to break ranks first.
        Also in the third quarter, David Miles's second and final term as a rate-setter will come to an end. He once ruefully remarked that he doubted he would ever vote for a rate increase in his six years at the central bank. He looks near-certain to be proved right.
        --Write to Jason Douglas at jason.douglas@wsj.com
        (END) Dow Jones Newswires

        July 08, 2015 05:59 ET (09:59 GMT)

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