2011.01.1704:49:00UTC+00ITEM Club: BoE Should Hold Key Rate At Current Level

The Monetary Policy Committee of the Bank of England should hold its nerve and keep base rates where they are until it is clear that the economy is taking the fiscal adjustment in its stride, the Ernst & Young ITEM Club said in its quarterly forecast on Monday.

The think tank forecasts consumer price inflation to approach 4% this spring, adding intense pressure on policy makers to raise Bank base rate this year. But, ITEM Club said consumer prices are being boosted by a series of indirect tax, commodity price and other temporary shocks associated with the adjustment of the UK and world economies.

The British economy is now projected to expand 2.3% this year and by 2.8% in 2012, led by a resurgent manufacturing sector. Gross domestic product grows by 2.9% in each of the later years of the forecast, it added.