The Bank of England held interest rates at 5.25 percent on Thursday, but is widely expected to cut them again by the middle of the year to shore up an economy buffeted by the global credit crunch. All but one of 65 economists polled last week forecast the Bank would leave British rates on hold after cutting them twice in the past three months.
Surveys this week showing prices accelerating at record rates only cemented those expectations. Inflation worries aside, most experts say the central bank will have to cut again soon to prevent a sharp slowdown in the economy. Finance minister Alistair Darling is expected to revise down the Treasury's growth outlook in his first budget next week.
"We expect the next (BoE rate) move to come in May ... falling to a low of 4.5 percent by the end of this year," said George Buckley, chief UK economist at Deutsche Bank. The BoE made no statement to accompany its decision but Monetary Policy Committee (MPC) members have been out in force in recent weeks to say they have to balance the competing demands of slowing growth and rising inflation.
Inflation in Britain is expected to rise sharply above the BoE's 2 percent target in the next months and could even top 3 percent, which would force BoE Governor Meryn King to explain himself to the government.