The Bank of England is likely to keep British borrowing costs at 5.25 percent for the third month in a row on Thursday, but analysts warned that another surprise hike was a possibility.
The BoE has raised rates three times since August last year, most recently with a surprise hike in January, as it fights above-target annual inflation.
Of the 32 economists polled by financial newswire AFX News, eight expected the BoE's nine-strong Monetary Policy Committee (MPC) to hike the key repo rate -- at which the central bank lends to commercial banks.
"It is not impossible that the MPC will sanction higher rates," said Investec economist Philip Shaw, who is calling for no change before a likely quarter-point hike in May.
Minutes from the MPC's March meeting showed that policymakers had voted 8-1 to keep rates on hold partly because of volatility across global financial markets.
With calmer market conditions, MPC members will concentrate this week on the outlook for economic growth and inflation when they begin two-day deliberations on Wednesday, analysts said.
"We still expect the Bank of England to lift interest rates to 5.50 percent in May as a precautionary measure aimed at containing medium-term inflation risks," added Global Insight's Howard Archer.
"Indeed, we believe there is around a 30 percent chance that the MPC will act as soon as Thursday."
The central bank opted for no change last month, sticking to its wait-and-see approach after British annual inflation fell heavily in January.
However, inflation bounced back in February, in part owing to higher air fares, reaching 2.8 percent.
Shaw added: "The various uncertainties suggest that the MPC will become more reliant on its quarterly inflation report analysis, pointing to a May move."
In its February report, the BoE said it expected British annual inflation to drop below its 2.0 percent target over the next 12 months, assuming that interest rates rose to 5.50 percent.
Meanwhile, Britain's economy expanded faster than previously thought last year, despite a downward revision to fourth-quarter growth, according to official data.
The economy grew by 2.8 percent in 2006 compared with 1.9 percent 2005, which was faster than the previous estimate of 2.7 percent.
"The stronger tone of the data over the last month suggests that the case presented in February's inflation report for a further interest rate hike still stands," said Vicky Redwood, an economist at Capital Economics.
She added: "Another rate rise still looks likely, probably in May. But with the markets having settled down again, there is a chance it could happen at April's meeting."
British inflation had shot up to 3.0 percent in December, above the BoE's government-set target of 2.0 percent, and the highest level since Labour came to power in 1997.
Copyright 2008, by
AFP
. All rights reserved
Cityscape to capitalise on India’s $50 billion...
Nasdaq eyes more Chinese listings 