Bank to hold interest rates again

The Bank of England is likely to hold off cutting base rates this week after it convenes for its first monetary policy meeting under new management.

Governor Mervyn King will chair the Monetary Policy Committee meeting, for the first time, on Wednesday and Thursday against a background of soft economic statistics, a strengthening pound and above-target inflation.

King said the 3.5 per cent rise in the pound against major currencies had been the most significant news since June's MPC meeting, suggesting the possibility of a rate cut given that last month's minutes showed that the sinking value of sterling was one of the main barriers to a cut. Then, three MPC members voted for a cut. If one more had voted the same way, Sir Edward George would have had to give a casting vote.

However, conflicting signals on the economy will this month be compounded by the possibility of a new style of chairmanship, another new MPC member, and a new target and measure for inflation.

For example, it is unclear if King will continue with George's conventions, such as voting last. Little is known of the views of new MPC member Rachel Lomax.

The switch in the inflation target could provide more ammunition for rate-cutters, but should not strictly be a consideration until November.

'With inflation set to be below target next year, the MPC must take a lead from the stance taken by the Federal Reserve and ECB by ensuring policy is clearly in favour of growth,' says Martin Temple of the Engineering Employers' Federation.

Despite this case for a cut, the Bank is likely to stick to form and wait for the completion of new downgraded growth projections in the Inflation Report next month, say City economists. A poll of 44 City economists showed 28 expect the MPC to hold rates steady at 3.75 per cent for the fifth consecutive month.