Bank of England to hold fire on policy despite growing pressure

The Bank of England is expected to leave interest rates unchanged and maintain its package of economic stimulus on Thursday, despite increasing pressure on the central bank to take more action.

The Monetary Policy Committee will publish its latest decisions at 12pm on Thursday. Private sector economists expect interest rates to be held at their record low of 0.1% and believe the Bank of England will maintain its bond buying programme at £745bn ($966.6bn).

Expectations of a lack of action come despite recent data pointing to a slowdown in the UK’s nascent economic recovery and inflation far undershooting the Bank of England’s target.

READ MORE: Predictions for UK economy stop getting worse — but remain dire

GDP figures last week showed growth continued to slow in July, putting pressure on the Bank to potentially extend quantitative easing to support the recovery.

Jobs data earlier in the week also showed the fastest fall in UK payroll numbers in almost three decades between March and June. Almost 700,000 jobs have been lost since the pandemic first struck in March.

In recent weeks, the risk of a no-deal Brexit has also risen sharply. This could further de-rail the UK’s fragile recover, economists say.

READ MORE: The UK economy's rebound lost momentum in July

Inflation data, published on Wednesday, showed price growth collapsed to just 0.2% in August — well below the Bank of England’s 2% target. That should theoretically encourage policy makers to cut interest rates to drive up spending.

Allan Monks, an economist with JP Morgan, said he expects the Bank of England to “indicate a greater degree of caution about the outlook.”

But Monks and most other analysts don’t expect any concrete policy changes.

“We expect the Bank of England (BoE) to keep policy on hold in this week's meeting,” a team of Bank of America economists led by Robert Wood wrote in a recent note.

READ MORE: UK employers have cut 695,000 jobs since March as unemployment rate rises

Inflation and jobs figures were slightly better than many had forecast. Both figures were also influenced by government programmes that have distorted the data.

Inflation was pushed lower by the government’s Eat Out to Help Out scheme, which gave people 50% off meals in restaurants throughout much of the month of August.

Job numbers are also being kept artificially higher by the government’s furlough scheme, which is due to end in October.

Analysts expect the Bank of England to hold fire on any major policy changes until November, allowing them time to review undistorted data.

READ MORE: UK inflation falls sharply as Eat Out to Help Out cuts average prices

“Why not wait until the November meeting when the MPC will have the luxury of analysing another seven weeks of economic data, the progression of the virus and associated restrictive measures, and another forecast round from the Bank’s staff/MPC?” said George Buckley, chief UK and European economist at Nomura.

Goldman Sachs economist Adrian Paul said his “base case” is that the Bank of England would increase its bond buying programme by £100bn in November, giving the UK’s economic recovery another shot in the arm. Wood and his colleagues at Bank of America also forecast a £100bn extension to quantitative easing in November.