No change expected in Bank of England rate decision

LONDON (AFP) - The Bank of England is widely expected to hold its key short-term interest rate steady at 5 percent when it makes an announcement later on Thursday.

The bank was to announce its decision following a two-day meeting here held amid financial turbulence around the globe.

Analysts expect the BoE's monetary policy committee to keep interest rates at 5 percent as Britain attempts to overcome rising inflation and slumping economic growth caused by high commodity prices and the credit crunch.

"Investors have scaled back their expectations of tighter monetary policy in the UK ahead of today's MPC meeting," said Capital Economics analyst John Higgins.

"A crescendo of weaker news on the real economy has rightly in our view quashed expectations of monetary overkill. The implied path of policy is now broadly similar to that prevailing ahead of the June meeting, with just a small chance of a rate hike by December," he added.

The BoE announces its rate decision at 1100 GMT.

While Britain's economy is seen as needing a rate cut to boost growth, the BoE must sit tight because of higher inflation caused by record-high oil prices and soaring food costs, according to economists.

"While we agree that current inflationary worries are likely to preclude any near-term cut in official rates, we see scope for substantial monetary loosening next year once supply-side inflation impulses from food and energy start to subside," said Higgins.

Inflation hit a 16-year high of 3.3 percent in May, according to official data.

Meanwhile the economy experienced growth of only 0.3 percent during the first three months of 2008, the lowest quarterly expansion for three years amid the global credit crunch and a slowing property market.

In addition, weak manufacturing and services sector data published this week pointed towards a potential recession for Britain, analysts said.

Last Thursday the European Central Bank raised eurozone lending rates by a quarter-point to a seven-year high of 4.25 percent in a move aimed at fighting record inflation.

A further major worry for Britain is a current downturn in its housing market.

On Wednesday, homebuilders Bovis and Redrow said that their workforces would soon be 40 percent below levels at the start of 2008 as jobs are slashed amid a downturn to the housing market.

The news came a day after homebuilder Persimmon said it would soon have cut 1,100 jobs since the start of 2008. Britain's biggest homebuilder, Taylor Wimpey, was axing 900 jobs and many workers were also being shown the door at peer Barratt.

In June, the US Federal Reserve kept its main interest rate at 2.0 percent, saying the likelihood of a sharp economic downturn had diminished while inflation risks had increased in the United States.