BoE rate decision has echoes of Jan 2007

March 10, 2011

By Sumanta Dey in Bangalore

Mervyn King

The BoE is expected to keep rates on hold at its monthly meeting today. Sixty-two out of 63 economists polled by Reuters expect such an outcome. Statistically speaking, that is more than a fair majority. But are we in for another upset like the one more than four years back? At that time, Simon Ward of Henderson Global Investors was the only economist correctly calling a rate hike.

There are a number of spooky similarities today that point to an almost identical scenario.

Leading up to January 2007, inflation in the UK was almost 3 percent, well above the bank’s 2 percent target. January 2011 inflation read at 4 percent. Then, Simon Ward forecasted the BoE to raise rates by 25 basis points in January, and placed a 55 percent probability on it — the only one out of 50 economists . Last week, he made exactly the same call for the outcome at this meeting and was the only one who saw a hike in rates today out of 63 economists.

Ward, speaking in his Money Moves Markets journal last week, had this to say:

“The February MPC minutes revealed that, in addition to the three members voting for an immediate interest rate rise, at least two others believed that the case for an increase had strengthened.

“The question for the waverers this month is ‘why wait?’”

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