Bank of England to announce its most hotly awaited policy decision in years

220
3
Bank of England to announce its most hotly awaited policy decision in years

UK inflation headed up as high as 5% compared to BoE's 2% target

The analysts divided on the chance of going to increase on Thursday.

There would be a rise in rate since the epidemic by big cenbank.

BoE must also decide on the fate of the bond-buying scheme

The Bank of England will give its most hotly awaited policy decision in years on Thursday, when it either raise borrowing costs from an all-time low or say it is waiting to ensure the post- lock down economy is ready for a rate increase.

The British central bank will make its announcement at time of 1200 GMT.

Since the coronaviruses hit, investors priced an increase in Bank rate to 0.25% from 0.1%, which would make the BoE the first of the world's big central banks to raise rates. Economists are less certain.

The Federal Reserve said on Wednesday that it would start scaling back its bond-buying programme this month, a first step towards a first U.S. rate increase not expected until mid- 2022.

European Central Bank President Christine Lagarde said on Wednesday that the ECB was very unlikely to raise rates next year.

Economists who are closely following the BoE are more divided than investors about the likelihood of a hike on Thursday.

A poll published last week showed that most analysts thought the BoE would keep rates on hold, although many said the decision was too close to call.

Ana Boata, head of economic research at Euler Hermes, part of Allianz, said the BoE faced the contrasting challenges of inflation, set to more than double its 2% target, and a squeeze on household spending as the government scales back stimulus aid, including its jobs support scheme, and raises taxes.

Britain is faced with risks from post-Brexit trade frictions and a recent rise in COVID-19 cases.

The BoE may trim its growth forecast for next year as part of a quarterly update to its outlook.

Boata said that by not acting, the BoE risks creating even more inflation.

The UK will be the first major economy to start fiscal consolidation in 2022, as it is premature to start an earlier monetary policy tightening cycle. Three more of the bank's nine policymakers have expressed similar concerns, which is why BoE Governor Andrew Bailey spoke about the need to contain inflation expectations.

The world economy has caused bottlenecks and supply problems because of raising rates now, a two-year increase wouldn't help address the main driver of inflation - the sudden reopening of the world economy that caused bottlenecks and supply problems.

The remaining three MPC members have not made clear comment about their views in public for a few weeks, leaving the outcome of the meeting on a knife edge.

The BoE will also announce whether it will allow its 895 billion-pound $1.22 trillion bond-buying programme to complete as planned.

Two members of the MPC voted to stop purchases early because of signs that the economy is recovering quickly from its nearly 10% coronaviruses-induced crash in 2020.

Bailey and his colleagues said that they could raise rates while still allowing the quantitative easing QE programme to run its course.

Bailey will lead a news conference at 1230 GMT when he may have to answer awkward questions, whatever the MPC"s decision.

Allan Monks, an economist at JP Morgan, said that the BoE would face a challenge in explaining consistency of its decisions on QE and rates with the current macro backdrop.

While economists are divided on a chance of a rate increase on Thursday, the BoE is trying to steer investors away from bets that rates will rise steadily through 2022 and hit 1.25% by the end of next year.

The BoE might choose to do that projecting a fall in inflation below 2% in two to three years, based on current market pricing. $10.7321 pounds