Spencer Dale and Martin Weale may be losing ground in their push against Governor Mervyn King for higher borrowing costs after the Bank of England kept its key rate at a record low amid signs of a faltering recovery. The central bank’s nine-member Monetary Policy Committee left its benchmark interest rate at 0.5 percent today, as predicted by all 55 economists in a Bloomberg News survey. The decision came after reports showed the economy grew just 0.2 percent in the second quarter and manufacturing shrank in July. The fading recovery, a worsening debt crisis in Europe and signs of weakening U.S. growth mean U.K. officials are having to set aside concerns about inflation that’s more than double their 2 percent target. Some central banks are going further. Turkey cut its benchmark rate to a record low today, while Swiss and Japanese officials have tried to stem appreciating currencies as investors seek havens amid the debt turmoil. “They’re in limbo land at the moment,” said George Buckley, chief U.K. economist at Deutsche Bank AG in London. “I think it’s going to be a while before we see any move in either direction, but I think the next move will still be up because we’re looking for more solid gains in the economy in the second half.” The Bank of England also left its bond-purchase plan at 200 billion pounds ($327 billion), as forecast by all 37 economists in a separate Bloomberg survey. Bonds Rise The pound was little changed against the dollar after the bank’s announcement and traded at $1.6348 as of 12:13 p.m. in London. It was down 0.5 percent from yesterday. As growth concerns mount, government bonds have risen, sending the 10-year gilt yield to a record low this week. The yield slipped 2 basis points today to 2.72 percent. (For a story on Bank of Japan intervention, click here. To read a story on the Swiss central bank and the franc, click here. For a story on the European Central Bank, click here.) U.K. inflation was at 4.2 percent in June, and Dale and Weale have said since the first quarter that a rate increase is needed to keep it from getting entrenched in the economy. Minutes of today’s decision will be published Aug. 17, which will show if they maintained a push for tighter policy. Other central banks have begun their inflation fight. The European Central Bank raised its benchmark twice this year, to 1.5 percent. It will announce its latest decision at 1.45 p.m. in Frankfurt, when it will probably leave the rate unchanged. Russia’s central bank kept rates unchanged for a third month today after increases in February and April. Sweden’s Riksbank raised its main rate for the seventh time in a year last month. Global Slowdown In Britain, a manufacturing index fell to the lowest in two years last month and a retail-sales gauge dropped to a 13-month low. While services growth unexpectedly accelerated, according to Markit Economics, it said the recovery will be “choppy.” Domestic demand is being curbed as the government cuts spending to reduce the budget deficit. Factory and services expansion also cooled in the euro area and the U.S. last month. At the same time, Europe’s debt crisis is showing little sign of abating, with Spanish and Italian bonds dropping, pushing yields to euro-era records against German bunds this week. ‘Growth Expectations’ The darkening global environment is jeopardizing U.K. officials’ hopes for manufacturing and exports to power the recovery, and may lead the Bank of England to trim its growth forecasts in quarterly projections next week. “They’ll have to talk about weaker exports and that will damp growth expectations,” said James Knightley, an economist at ING Financial Markets in London. “In this environment, a rate hike in the U.K. would not be particularly helpful.” The fallout from Europe’s debt crisis forced the Swiss central bank to unexpectedly cut interest rates yesterday to weaken the franc. Considered a haven in times of turmoil, the currency had surged to a record against the euro. Japan followed Switzerland today in seeking to stem an appreciating currency, selling the yen and pledging to inject 10 trillion yen ($126 billion) in funds to the economy. Investors are betting that King’s majority on the MPC will continue to win the argument on rates. They have bet that the Bank of England won’t raise borrowing costs until after June next year, data from Tullett Prebon Plc show. Faster inflation is adding to pressure on the economy by squeezing consumers. At the same time, the government is cutting public jobs and some private companies are also shedding workers. HSBC Holdings Plc (HSBA), Europe’s largest bank, said Aug. 1 it will eliminate 30,000 jobs globally by the end of 2013. Barclays Plc (BARC) said a day later it’s eliminating about 3,000 jobs this year. “I think uncertainty is going to take a few months to clear up,” Vicky Redwood, an economist at Capital Economics Ltd. in London and former central bank official, said on Bloomberg Television before the decision. “Certainly for the rest of this year, most MPC members will stay on hold.” To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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