Low inflation set to prevent rate hike today

Chris Papadopoullos
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BANK of England (BoE) officials are widely expected to keep interest rates at record lows today.

In November, BoE governor Mark Carney warned inflation could dip below one per cent, in which case he would to pen an open letter to the chancellor explaining why.

“Growth remains solid, and petrol prices falls should boost the outlook. But low inflation means there is no need to hike rates now,” Robert Wood, economist at Berenberg told City A.M.

But not all economists agree rates should be kept down. “The economy is close to full capacity and slowdown expectations are exaggerated, with the Eurozone outlook improving. Both monetary and fiscal policy are much too loose,” Simon Ward, chief economist at Henderson Investors told City A.M.

Central bankers in Europe are also set to decide on monetary policy today. Italian 10-year government bond yields fell below two per cent for the first time ever yesterday as markets anticipated dovish com­ments.

ECB official Vitor Constancio said in a recent speech they would likely remain low until 2015 before launching another stimulus measure.