BoE keeps rates at 0.5 pct as expected

LONDON, June 9 (Reuters) – The Bank of England kept interest rates at a record low on Thursday as expected, as signs of economic weakness at home and abroad appear to have outweighed any concern about above-target inflation.

The BoE’s decision means that rates will stay at 0.5 percent for a 27th straight month, as unanimously forecast by economists in a Reuters poll last week. The market’s focus will now switch to the European Central Bank policy decision at 1145 GMT.

Economists do not expect the BoE to raise rates until the end of the year, and money markets are not fully priced in for a rate rise until May 2012 — a sharp reversal from bets on a May 2011 rate rise which were widespread three months ago.

Surveys of manufacturing and services activity have weakened in Britain, the United States and the euro zone over the past month, even as British inflation rose further above its 2 percent target to 4.5 percent.

Inflation looks set to peak around 5 percent later this year, as utilities have started to raise household gas and electricity bills in response to increases in oil prices earlier in the year. However, last month the BoE forecast that it would be back on target within the next two years.

The BoE made no change to the 200 billion pounds of quantitative easing that it pumped into the economy between March 2009 and February 2010. (Reporting by David Milliken)