Bank of England to keep rates at 0.5% until 2011

[Andrew from Vista Financial]

An interesting outlook from the economists at RBS.

 

Interest Rates

 

The Bank of England pressed ahead with asset purchases, and has now spent c75% of the £125bn pot allocated for this programme.

 

There were no changes in the Bank Rate, and we expect it to stay at 0.5% until the beginning of 2011. That is because the wider economy still looks fragile, in spite of some more signs of stabilisation. The latest data on industrial output (for April) managed a rebound of sorts, rising 0.3% m/m, but it remains 12% below the level of last year. Unemployment continued its steady trek upwards, rising 230k in the three months to April. More worryingly still, the number of workers employed suffered its sharpest fall on record, as 270k were put out of a job between February and April. Wage growth also continued to be depressed. The effects of a weaker labour market have started to feed through to retail spending, which declined in May. The volume of sales on the high street is now 1.7% lower than a year ago. This will have knock on effects on profitability and rents across the high street. And yet inflation stubbornly stayed above the Bank’s 2.0% target. Looking forward, inflation is likely to moderate in the face of subdued wage growth and little retail pricing power.

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