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Bank of England may hike rates by 25 bps next month
REUTERS
London, April 10: The Bank of England's Monetary Policy Committee is likely to raise interest rates again in May, by at least 25 basis points, the Centre for Economics and Business Research said on Monday. The MPC, which left rates unchanged at 6.0 percent last week, could even go for 50 basis points in a bid to cool off Britain's rapidly growing economy, the CEBR said in a report. "The outlook for the UK for the rest of the year is still for three percent-plus growth, fast enough to exacerbate tensions in the labour market, widen the balance of payments deficit and force the Bank of England to raise interest rates further," it said.The fact that the Bank has a preferred time horizon of two years means that it will be only partly reassured by the currently tame inflation picture. "The conclusion of its next quarterly inflation report next month will be that prospects for prices in 2001-02 are not as benign as those for prices in 2000," the CEBR said. "In particular, Chancellor (of the Exchequer) Gordon Brown's spending increases for April 2001 onwards will inject demand in an already buoyant economy," it said. In his budget last month, Brown announced plans for large increases in public spending. Economists are divided over the impact of the measures on monetary policy, with some arguing they will put further pressure on rates. The CEBR believed the MPC did not raise interest rates last week for "tactical" reasons. "A rate rise in May should be easier for the MPC to justify because it can be pegged to the latest inflation forecast. It should also cause less embarrassment to the Chancellor than an increase inthe immediate aftermath of his budget would have done." -- (Reuters) Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.
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