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BoE set to hold rates at record low

LONDON, May 6 – The Bank of England is widely forecast to keep interest rates at a record-low 0.5 percent at a key meeting on Thursday as Britain battles its fastest economic slowdown in 30 years, analysts said.

Faced with a British economy that shrank 1.9 percent in the first quarter, the BoE is also expected to maintain its programme of pumping out 75 billion pounds (84 billion euros, 106 billion dollars) of new money.

Philip Shaw, economist at Investec Securities in London, said it was "highly probable" that the BoE "will once again keep the overall stance of policy on hold, namely the Bank rate steady at 0.5 percent and the target for quantitative easing (QE) asset purchases at 75 billion pounds."

The central bank\’s rate-setting monetary policy committee (MPC) will deliver its latest verdict after a two-day meeting which kicks off on Wednesday amid a deepening recession.

British interest rates hit 0.5 percent — the lowest level in the BoE\’s 315-year history — back in March. At the same time the BoE announced its QE programme, seen by many observers as a last chance to free Britain from the global credit crunch that erupted in 2007.

"The consensus seems quite certain that QE will be extended beyond end-May" at Thursday\’s meeting, said Citi analyst Michael Saunders.

"We are more doubtful. Financial conditions are improving and the MPC might well decide to leave the initial 75 billion-pounds expansion of bank reserves in place but not to expand bank reserves further straightaway."

Britain\’s finance minister Alistair Darling has authorised the independent MPC to create up to 150 billion pounds of new money under QE.

The BoE, facing a global recession and falling inflation in Britain, has meanwhile slashed borrowing costs from a rate of 5.0 percent last October to the current record-low level.

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"It seems a stone dead certainty that the Bank of England will leave interest rates unchanged at a record low of 0.50 percent at the May 6-7 meeting," said IHS Global Insight analyst Howard Archer.

"Indeed, interest rates seem likely to remain at 0.50 percent deep into 2010. The Bank of England is now very much focusing on quantitative easing in its attempts to counter still very tight credit conditions and boost economic recovery prospects."

Also on Thursday, the European Central Bank is set to unveil record low interest rates for the eurozone and other ways to pull the bloc\’s members from their worst recession in six decades, at a meeting in Frankfurt.

In addition to lowering the bank\’s benchmark lending rate by a quarter point to an all-time low of 1.0 percent and pledging to keep it there for a while, analysts think the ECB will extend the length of its unlimited loans to banks from six months to one year

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