LONDON, Feb 7 (Reuters) – The Bank of England will have to
decide this week whether its first priority is to tackle soaring
inflation or to support Britain’s fitful economic recovery.

Such opposing risks put Britain’s central bank in an
unenviable dilemma and mean Thursday’s decision is the first
since rates were cut to record lows in March 2009 when investors
have felt in any real doubt about the outcome on rates.

LONDON (Reuters) – Divisions appear to be widening on the Bank of England’s Monetary Policy Committee as inflation rises while growth remains very weak. Minutes of the MPC’s January meeting showed two members of the nine-member MPC wanted to raise interest rates, up from one member in previous months.

The central bank was granted operational independence from the government in 1997 and is charged with targeting consumer price inflation at 2 percent. Five of the MPC’s members are full-time Bank employees; the remaining four are “external” members appointed by the government from industry or academia.

LONDON (Reuters) – The economy suffered a shock 0.5 percent contraction in the last three months of 2010, with unusually poor winter weather accounting for only part of its first shrinkage in five quarters.

Construction and service sector output — dominant parts of the economy — posted big quarterly falls and the Office for National Statistics said even without the disruption from the coldest December in a century, the economy would have struggled to register any growth at all.

LONDON, Jan 25 (Reuters) – Britain’s economy suffered a
shock 0.5 percent contraction in the last three months of 2010,
with unusually poor winter weather accounting for only part of
its first shrinkage in five quarters.

Construction and service sector output — dominant parts of
the economy — posted big quarterly falls and the Office for
National Statistics said even without the disruption from
Britain’s coldest December in a century, the economy would have
struggled to register any growth at all.

LONDON, Jan 25 (Reuters) – After last week’s shock rise in
inflation, GDP data on Tuesday will show Britain’s economy
slowed in the final quarter of last year, highlighting the
dilemma facing the Bank of England.

Business Secretary Vince Cable said that poor weather late
last year was likely to depress the Q4 GDP figures when they are
announced at 0930 GMT.

LONDON, Jan 24 (Reuters) – The factors pushing up British
inflation cannot simply be dismissed as “one off” influences
and the Bank of England risks losing credibility if it fails to
respond, BoE policymaker Andrew Sentance said on Monday.

In comments which highlight his disagreement with BoE
Governor Mervyn King — who is likely to use a speech on
Tuesday to argue price rises are under control — Sentance said
inflation risked becoming entrenched and a gradual tightening
of policy now could prevent a more aggressive move later on.

LONDON, Jan 18 (Reuters) – Last month’s jump of British
inflation may well have tipped the balance toward an early
interest rate hike, by ensuring the damage to the central bank’s
credibility from keeping rates flat outweighs the costs of
tightening policy.

Annual inflation climbed to 3.7 percent in December, almost
double the Bank of England’s 2 percent target and the 20th time
in the past 33 months that it has exceeded the Reuters consensus
forecast. [ID:nAHLHCE7C7]

LONDON (Reuters) – Imports of oil and aircraft pushed Britain’s goods trade deficit to a record high in November, in a development that will raise further concerns about fourth-quarter growth.

However the underlying deficit, which strips out volatile items like oil and aircraft, narrowed from October’s record high after a sharp rise in car exports. This kept alive hopes that some improvement in British competitiveness is underway.

LONDON (Reuters) – Concern the Bank of England has lost its grip on inflation has risen to such a level that markets are increasingly pricing in an interest rate rise by the summer to prevent a full-blown credibility crisis.

British inflation has surged to a six-month high of 3.3 percent — well above that of any other G7 country — and looks set to hit 4 percent early this year, double the target.

LONDON (Reuters) – Faced with opposing risks from a sharp economic slowdown and prolonged inflation overshoot, the Bank of England looks likely to leave interest rates unchanged next week.

However, talk of further quantitative easing — a realistic prospect a few months ago — has receded. Almost all economists now believe the next move will be a rate hike, with the main question being when.