LONDON—The Bank of England held interest rates at 5.0 percent on Thursday, but most experts predict a cut next month to shore up the economy in the face of a global credit crunch.
Only a handful of economists had predicted a move this month so soon after last month's quarter-percentage point reduction—the third cut since December—as inflation is some way above the central bank's target and will probably go higher.
But falling house prices, crumbling consumer confidence and other signs pointing to a sharp economic slowdown are expected to force the BoE's hand in June.
"We still expect rates to come down to 4.75 percent in June," said Philip Shaw, chief economist at Investec.
Sterling initially rose on the announcement—the BoE made no accompanying statement—as some market players had been braced for a cut, but it soon retraced its gains as a reduction is still expected next month
One policymaker—arch-dove David Blanchflower—said last month that the British economy faces possible recession unless the central bank took swift action.
While he must have voted for lower interest rates, other policymakers such as Governor Mervyn King have pointed out that the economy is not exactly falling off a cliff yet, and warned that price pressures are still high.
The European Central Bank is expected to leave interest rates unchanged at 1145 GMT as euro zone policymakers are also worried about rising inflationary pressures.
Attention will now turn to the BoE's new inflation forecasts to be published next week for a clearer idea on where policy is heading.
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