The Bank of England is set to keep its interest rate at 0.25 per cent this week, economists predict, despite forecasts that inflation is creeping up.
The bank's monetary policy committee (MPC) meets ahead of publishing its latest rates decision this Thursday. On the same day, the bank will publish its quarterly inflation report, making it a monetary policy Superthursday.
Dr Howard Archer of IHS Global Insights predicted that the MPC will need to adjust forecasts for the pace of growth and inflation to reflect recent indicators that the economy is outperforming the Bank's expectations.
Jonathan Portes, professor of economics and public policy at King's College, London, agreed that the Bank will raise forecasts for growth in the near term. However, he thought this would have little impact on rates.
He said: “I would expect people think there will be a rate rise given where we are now, which is better than we thought. But in general I think the Bank is very much in 'wait and see' mode.”
Dr Archer also said the current interest rate was likely to stay the same for the rest of the year.
The Bank halved the interest rate from 0.5 per cent to 0.25 per cent in August last year in the wake of the referendum and ensuing concerns over the economy.
However, economists expect that the above-target inflation rate will give the MPC cause to consider changing the interest rate in the long-term.
Dr Archer said: “If the Bank of England forecasts show consumer price inflation markedly above its 2 per cent target on a three-year horizon, it would fuel belief that the Bank of England’s most likely next move will not only be to raise interest rates – but also that this could happen sooner rather than later.”
In its November forecast the Bank projected that consumer price inflation will be 2.7 per cent at the end of 2018.
Simon Ward of Henderson Global Investors anticipated that the inflation forecast would remain unchanged, but that the projection for GDP growth would be revised upwards.
He said: “In November they had a neutral bias but now they will err to a tightening bias.
“Overall I'm expecting the message to be that they're expecting growth to flow, the longer it goes without flowing the greater cause they will have to revise the August cut.”
In the fourth quarter of 2016, quarter-on-quarter GDP growth was 0.6 per cent, above the 0.5 per cent rate expected by the MPC at their December meeting.