Bank of England to keep interest rate at full speed on Thursday


LONDON, Aug 5 - The Bank of England is expected to keep its huge support for the economy running at full speed on Thursday despite a strong recovery from the pandemic slump and a rise in inflation.

However, the central bank may also start to lay out its plan for how it will reverse its stimulus.

With more than 70% of adults now vaccinated against COVID - 19 and most social distancing rules lifted, Britain's economy has recouped much from its 10% crash of 2020 and is on course to attract people to the United States and expand at the fastest pace among big rich nations this year.

In June, the BoE added 2.5% to inflation and will tell a new set of forecasts that it is on course to rise even further about its 2% goal in the months ahead.

But economists polled by Reuters say the BoE will keep its benchmark interest rate at its all-time low of 0.1% and leave its bond buying programme on track to reach its 895 billion-pound target size by the end of this year.

Two policymakers have stated that the time is approaching for the removal of some of the BOE's stimulus calls echoing calls by some members of the U.S. Federal Reserve who are facing an even more sharper rise in inflation.

But most of the other rate-setters have said the acceleration in price growth is likely to prove transitory as economies around the world kick back into life.

The bigger risks, they say, are that unemployment rises more sharply than expected as the government cuts jobs subsidies at the end of September and that the recovery buckles due to the spread of the Delta variant of coronavirus.

But with British gross domestic product likely to return to pre-pandemic size by the end of this year or before 2022, the BoE wants to start explaining how it will start to wean the economy off its unprecedented levels of support.

BoE officials have said they will soon publish new guidance on how they could sequence raising rates with reduction of the bond stockpile.

Many economists expect that the plan will be announced on Thursday.

Options include not selling the cash from maturing bonds or actively selling bonds, possibly about or shortly after the time that BoE begins to raise rates - something investors expect to happen in about a year's time.

This is of course relevant for markets, but the BoE has also under rising pressure to justify its balance sheet policy amid rising inflation and its interaction with fiscal policy, JPMorgan economist Allan Monks said.

Last month a committee in the lower house of parliament called on the BoE to explain why it was not curtailing its bond-buying in the face of rising inflation. Its chair said the BoE was addicted to the programme.