The Bank of England is still expected to keep its key repo rate unchanged at the near six-year high of 5.25 pct when it concludes its latest rate-setting meeting today, even though this week's surveys into the manufacturing and services sectors found pricing components at elevated levels.
None of the 32 economists polled by AFX News, conducted after yesterday's services sector purchasing managers' index, have changed their call that the Monetary Policy Committee will keep rates unchanged, even though the average prices charged sub-index jumped to a seven-month high of 55.3 in March from 54.2 in February. Only eight of the 32 economists polled think there will be a hike.
The minutes to the last meeting on March 8 reinforced expectations that the MPC will want to wait until May, an Inflation Report month, before triggering another increase. The 8-1 vote in favour of keeping rates unchanged, with arch-dove David Blanchflower voting for a cut, means there will have to be a big swing to deliver an increase.
"While Andrew Sentance and Timothy Besley may well revert to voting for higher interest rates, we believe that most of the other MPC members will be prepared to hold fire for a little longer while they further gauge what impact the three interest rate hikes enacted since last August are having on the economy," said Howard Archer, chief UK economist at Global Insight.
"We forecast that 5.50 pct will mark the peak in interest rates as growth loses a little momentum over the coming months and inflation heads back down, and we also suspect that companies will find it difficult to make major price increases stick," he added.
Others though reckon that there's enough evidence for the MPC to pull the trigger today.
George Buckley, economist at Deutsche Bank, thinks a hike can be justified by higher inflation measures across the board, generally upbeat activity since the January rate rise, the continued strength in the euro area economy, robust domestic demand, high money supply growth and rising household borrowing.
He said the main risks to this view are weaker household income growth, including only a moderate increase in wage settlements, the impact of higher rates and debt levels on consumption going forward and the PMIs moving broadly sideways.
"Suffice to say this looks likely to be a difficult decision for the committee and we would not be surprised to see a three-way split when the minutes are published," he added.