---- by Victoria Main ----
LONDON (AFX) - The Bank of England's Monetary Policy Committee is expected to keep rates on hold on today at the conclusion of its two-day monthly meeting despite the economic slowdown underscored by Friday's poor growth figures, economists said.
"I think it will be closer this time than it has for the last month or two, but on balance I think they won't move," Credit Suisse First Boston economist Robert Barrie said.
"We've gone through quite a weak patch in the economy on quite a number of measures, of which the second-quarter gross domestic product figures were the most convenient summary," he said.
"But I would think things are getting stronger rather than less strong from here on," he said.
Barclays Capital economist David Hillier agreed the decision this month will be a close call given the two-speed economy emerging in the UK, but that the MPC will leave rates unchanged.
"The MPC faces a real conundrum so this is a difficult decision. If you were looking at one part of the economy, you would probably say a 25 basis point cut is required. But if you look at the rest of the economy, it tells you the reverse," he said.
Hillier said a rate cut today would probably not help manufacturers because they are stung by weaker global demand and the strength of sterling. It would, however, lower mortgages and the cost of credit, thus creating the risk of a consumer boom, he said.
"Put all of this together, and we think that it means the repo rate will be left at 5.25 pct. Sushil Wadhwani will probably vote for a cut again, but we expect all the other members to vote for no change," he said.
Royal Bank of Scotland economist Ross Walker too concluded that strong domestic consumption will persuade the MPC that no rate cut is necessary despite poor performance in the manufacturing sector. "The judgement that the MPC is having to make is whether the consumer side of the economy will be strong enough to withstand the effects of the recession in manufacturing or will the recession in the production sector eventually spill over and drag down the consumer," he said.
"Our forecast at the moment is that consumer strength will be sufficient and what we'll see next year is a rise in interest rates," he said.
Barclays Capital's Hillier went further, predicting that the next move in interest rates will be upwards, perhaps as soon as the end of the year.
He cautioned however that the MPC may cut rates in response to what he said is an overly negative media view of the economic situation in the UK.
"I still believe that the next move is up, and I still think we'll get that by the end of the year. The problem is that we're going to see the absolute worst data over the next couple of months," he said. "If the MPC starts to believe all this negative press, we might get an inappropriate cut. This is just the point in the cycle where you need to keep your head and say, 'OK, the numbers are bad, this is what we were expecting at the start of the year and this is why we've cut interest rates 75 basis points already this year.' If you just keep cutting until the numbers get better, you've gone far too far," he said.
RBoS' Walker also conceded another cut before the end of the year is a possibility.
"Our forecast is based on a pickup in global demand next year, and the consensus for the growth forecast for next year is still up about 2.7 pct," he said.
"But near term there is uncertainty, and you still couldn't rule out another rate cut before the year end, just on the back of the weakness in the production sector," he said.