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FACTBOX-What the BoE has to weigh up next week

Published 04/30/2010, 09:08 AM
Updated 04/30/2010, 09:24 AM

By David Milliken

LONDON, April 30 (Reuters) - The Bank of England is delaying its Monetary Policy Committee meeting by two days in May so discussions take place after a national election on May 6, with the decision released at 1100 GMT on Monday, May 10.

Nonetheless, economists do not expect a change to the record-low 0.5 percent interest rates or any reversal of the 200 billion pounds of asset purchases, after a month in which data showed tepid growth and above-target inflation.

Following is a summary of the main factors the MPC members are likely to discuss:

ECONOMIC GROWTH

Data last week showed that Britain's economy grew by 0.2 percent in the first three months of this year, slower than the 0.4 percent achieved when the economy came out of recession in the last quarter of 2009 and at the bottom end of economists' forecasts.

The year-on-year GDP fall of 0.3 percent was also bigger than the 0.1 percent drop expected by the BoE, though private sector economists do not rule out the possibility of upward GDP revisions -- as in Q4 -- when more data comes in.

Overall, though, the GDP data is unlikely to shift the BoE's view in their April meeting that the momentum for growth is ongoing, despite downward risks from euro zone weakness and market worries about governments' creditworthiness.

The BoE will also have April purchasing managers' surveys for manufacturing and non-retail private-sector services to consider by the time of Friday's MPC meeting.

INFLATION

Consumer price inflation proved stickier than most economists had forecast in March, rising to an annual 3.4 percent from 3.0 percent due to higher petrol prices and air fares, as well as upward pressure from household gas bills.

An ongoing impact from past falls in the pound may also have been a factor in pushing up consumer prices.

Nonetheless, for the quarter as a whole inflation was very close to the BoE's February forecast, and the central bank confirmed last month that it expected inflation to return to its 2 percent target later this year.

Oil prices have been broadly stable since the last BoE meeting at around $86 a barrel. Sterling has held at around $1.53 and strengthened to a three-month high of just over 86 pence versus the euro.

ELECTION

Britain's election matters to the Bank of England because fiscal tightening is likely to start sooner and cut deeper if the opposition Conservatives win a clear majority -- something which would reduce the pressure on the BoE to raise interest rates as the economy recovers. However opinion polls suggest a strong possibility of a "hung parliament" in which no party has an overall majority -- a situation which has not occurred since the 1970s and one which could prompt financial market turmoil if it proves hard to form a stable government. (Editing by Stephen Nisbet)

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