Forex: Bank of England will keep Rate at 0.5% until at least November

The Bank of England looks set to keep the benchmark interest rate at a record low of 0.5% until at least November as the economic recovery in Britain remains “vulnerable” according to the British Chamber of Commerce. The BCC warned that the recovery was still weak and “serious risk of a setback remains”, with the manufacturing sector still struggling.

The chief economist at the BCC, David Kern said yesterday “In the last forecast, we envisaged an increase to 0.75% in August and to 1% at the end of the year. If you asked me what I think will happen today, I see the first to 0.75% in November or December, and then only next year to 1% or higher.”

“The economy is still vulnerable and it’s important for the moment to maintain interest rates at their current low level and maintain the quantitative easing at its present level,” Kern said. “It’s very important to make it clear to businesses that interest rate increases will not take place this year.”

Manufacturing orders for the first three months of the year were little higher than in the previous three months. New orders continued to fall and employment in the sector suffered a setback after an encouraging fourth quarter in 2009. However last week’s purchasing manager’s index showed that activity in the UK manufacturing sector had grown at its fastest pace in 15 years in March.

Prime Minister Gordon Brown yesterday called a general election for May 6th hoping to capitalize on the end of the recession in the fourth quarter. The UK economy emerged from recession in the fourth quarter of 2009 after six consecutive quarters of contraction. The latest figures show the economy grew by 0.4% in the last three months of 2009, revised upward from the original estimate of 0.1%.

Yesterday the Guardian Newspaper published an opinion poll showing the opposition Conservatives’ lead over ruling Labor has narrowed once again, raising threats about the prospect of a hung parliament at a time when decisive action on the gaping budget deficit is seen as imminent. The Pound has been weakened by deficit concerns; the current UK budget deficit is close to 12.6% of GDP, one of the highest in Europe and the currency has dropped 5.3% against the US Dollar on the forex online market this year.

Bank of England policy makers are due to make the rate announcement tomorrow at 12pm. Economists are predicting that the bank will keep the interest rate unchanged and hold its bond purchase plan at 200 billion Pounds ($304 billion) as officials decide if the economic recovery is strong enough to last.