King Faces Isolation in Europe as ECB Prepares to Raise Rate

Bank of England Governor Mervyn King may find himself more isolated in Europe as he fights to keep record-low interest rates at a time when borrowing costs are set to increase across the 17-nation euro region.

King, who today chairs a meeting of the nine-member Monetary Policy Committee in London, has resisted calls by three officials to raise the benchmark interest rate from a record low of 0.5 percent. All 57 economists in a Bloomberg News survey forecast the panel will leave it on hold again at noon. Another survey shows the European Central Bank will raise its main rate for the first time since July 2008.

The MPC has held off raising borrowing costs even after inflation accelerated to more than twice the bank’s target, with King saying price growth will ease as government budget cuts restrain the recovery. Keeping rates on hold as the ECB tightens policy may weaken the pound against the euro, amplifying import- price inflation.

“The pressure is absolutely building and they’re going to need to raise rates at some point in the near future,” George Buckley, chief U.K. economist at Deutsche Bank AG in London, said in a telephone interview. “This week’s meeting could turn out to be more in the balance than expected.”

The pound slipped 0.2 percent against the dollar today and was at $1.6297 as of 8 a.m. in London. Bonds declined, with the yield on the 10-year gilt rising 3 basis points to 3.79 percent.