Bank set to hold fire on rates for now

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Only five of 65 economists polled last week predict the Monetary Policy Committee will cut rates on Thursday. Most think back-to-back rate cuts are unlikely because of concerns over inflation.

"We believe June is a much better bet for the timing of the next interest rate cut," said Alan Clarke, an economist at BNP Paribas.

"A move in June would maintain the recent pace of one cut every two months. It would also allow the accumulation of more concrete evidence that the economic data are deteriorating."

While there is little doubt the economy is slowing, inflation has been above the Bank's 2 percent target since October and is likely to rise even further in the coming months as rising food and energy prices work their way through the system.

The price of oil shot to a new record just shy of $121 a barrel this week.

On the other hand, a slowing economy means inflationary pressures are unlikely to build for long. Wage pressures are remarkably subdued and there is a risk that a sharp downturn in the housing market could turn what the central bank sees as a necessary slowdown into something more nasty.

David Blanchflower, the most dovish member of the nine-member monetary policy committee, has warned that without aggressive interest rate cuts Britain's economy could tip into recession and house prices could fall by as much as a third.

The economics newsflow has taken a turn for the worse. Britain's dominant services sector grew at its weakest rate in five years last month while house prices, as measured by the country's biggest mortgage lender, fell at their fastest annual rate in 15 years.

Still, there is little sign that the more hawkish members of the committee are softening their stance. Timothy Besley and Andrew Sentance both opposed last month's majority decision to cut interest rates and have used recent speeches to stress the risks posed by inflation.

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