LONDON – The Bank of England is expected to keep its main interest rate unchanged Thursday but indicate that it could hike again in May to keep a lid on inflation as wages start to pick up.
The minutes to the bank's monetary policy decision will be pored over by investors to see how many, if any, of the nine-member Monetary Policy Committee voted to raise the main interest rate a quarter-point from the current 0.5 percent. The panel raised rates last November for the first time in a decade to contain inflation. And at its February meeting, it hinted there could be a rate hike in May amid above-target inflation and rising wages.
This week's economic data have shown inflation easing but still above the 2 percent target at an annual rate of 2.7 percent, and wage increases picking up.
Many economists also think that Monday's deal between the British government and the EU on the outlines of a transition period after Brexit day on March 29, 2019, could make a rate hike more likely in the near-term. Though Brexit remains the biggest uncertainty surrounding the British economy, the transition deal is set to ease the pressures facing business, which the Bank of England hopes will shore up business sentiment.
"Now that a deal has been struck on the transition period, which helps cement the bank's assumption that the road to Brexit — for now at least — will be 'smooth,' there are few other obvious barriers to a near-term hike," said James Smith, developed markets economist at ING.
"Attention is now turning to whether policymakers could go for a second rate rise at some point later in the year."