Economists predict UK rates will stay on hold until 2012

A group of 55 economists believes the Monetary Policy Committee will maintain interest rates at 0.5% this week, as manufacturing and services surveys show the UK economy is slowing.

Economists are also concerned the country’s economy is too weak for policy tightening, as severe government spending cuts start to bite, Bloomberg reports.

Dutch bank ABN Amro has deferred its forecast, expecting the first rate hike to occur in 2012, despite inflation soaring to 4.5% last month, more than twice the Bank of England’s target.

Joost Beaumont, an economist at ABN Amro in Amsterdam, said: “The MPC will now wait until next year, when most of the fiscal consolidation measures have been implemented and the economy regains momentum.”

Meanwhile Barclays and J.P Morgan predict the BoE will raise rates in November, rather than August.

Trades in forward contracts on the sterling overnight interbank average reveal investors are now banking on a 0.25% rise in March next year, rather than November, as reflected in trades three weeks ago.

The UK’s manufacturing industry grew at its slowest rate in almost two years in May, while services growth also slowed last month.

Construction orders also fell 23% in the first quarter, the most in 23 years according to the Office for National Statistics.



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