Bank of England Leaves Interest Rate Unchanged, Holds Asset Purchase Plan

(Bloomberg) -- Mark Carney may be getting ready to unsettle investors again.

The Bank of England governor has an opportunity this week to address bets that he’ll keep interest rates unchanged until mid-2016. Market sentiment shifted Friday after the Conservative election victory, with traders predicting the BOE will offset tight fiscal policy by holding borrowing costs at a record low for longer. The bank maintained the benchmark at 0.5 percent on Monday, as forecast in a Bloomberg survey.

The economy has grown for nine straight quarters and, while inflation is below the BOE’s target, oil prices are rising. Against that backdrop, Carney might stop short of endorsing the view that the key rate will stay unchanged for more than another year when he presents new forecasts on Wednesday. His press conference on Wednesday is a chance for the governor to repeat what he’s done before and tell investors they’ve gone too far.

“We wouldn’t be surprised to see the BOE nudge up their inflation forecasts,” said James Knightley, an economist at ING Bank in London who sees a “good chance” of a November rate increase. Policy makers may “emphasize a little more forcibly that the prospect of interest rate rises is getting closer.”

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