BOE keeps key rate at 5.25%

LONDON: The Bank of England kept its benchmark interest rate at a 5 1/2-year high as policy makers assessed whether three increases in the past six months were sufficient to bring down inflation. The nine-member Monetary Policy Committee, chaired by Governor Mervyn King, held the Bank Rate at 5.25% on Thursday, as predicted by all except nine of the 67 economists surveyed by Bloomberg News. The remainder expected a quarter-point increase.

The UK central bank’s forecasts show one more move may be needed to push inflation below its 2% target. Investors had already pared expectations the bank would raise rates after retail sales dropped the most in four years, inflation slowed and concern about the US economy helped spark a global stock-market rout.

“The committee clearly isn’t in any rush to move,” said Trevor Williams, chief economist at Lloyds TSB Group Plc, who formerly worked as a forecaster for the UK government. “The next increase is more likely to be in May.”

The pound fell to $1.9317, or about 0.2% today in London, from $1.9344 before the announcement. The rate on the futures contract for June fell three basis points to 5.64%, down from 5.90% on January 23.

The contract settles to the three-month London interbank offered rate for the pound, which averaged about 15 basis points more than the central bank benchmark for the past decade. In the US, where the Federal Reserve has kept its federal funds’ rate target at 5.25% since June, an economic slowdown may hurt global growth and limit the scope for further rate increases around the world.

Former Chairman Alan Greenspan said February 26 there’s a chance the US economy could slip into recession, contributing to a slump in financial markets that wiped $3.3 trillion from global stock-market value in six days.

“Only if this is the beginning of a bear market which creates a recession in the UK economy or globally will policy makers act,” said Neil Mackinnon, chief economist at ECU Group Plc in London who for