BoE to say Thursday whether it has delayed rate hike

BoE to say Thursday whether it has delayed rate hike

The Bank of England will say on Thursday whether it has delayed its first interest rate hike since the COVID 19 flu or is taking action to protect itself against a surge in inflation.

With a new coronaviruses wave in full swing, investors were betting on an increase in Bank Rate until data showed on Wednesday that British consumer price inflation rose by far more than expected and hit a decade-high 5.1% in November.

Ellie Henderson, an economist at the bank Investec, said that the Monetary Policy Committee has a difficult decision to make.

There is a real risk of inflation becoming entrenched, especially considering the signs of second-round effects in terms of rising wages, supported by a strong labour market, but this is balanced against the threat to the economic recovery from the new Omicron variant. A rate hike on Thursday would put the BoE ahead of the U.S. Federal Reserve. The Fed said on Wednesday it was speeding up its phase-out of its bond-buying stimulus, a first step before the interest rate rises in 2022.

The European Central Bank and the Bank of Japan are far from raising borrowing costs, and are due to give their latest policy statements on Thursday and Friday.

With global inflation pressures exacerbated by post-Brexit problems in Britain, the BoE has signalled that the time to start weaning the economy off its huge Pandemic - Stimulus programme is approaching.

But the British central bank wrong-footed investors six weeks ago when it kept its Bank Rate on hold at 0.1% rather than raise it to 0.25%, giving it more time to see the extent of any hit to the labour market since the end of the government's job-protecting scheme.

The data showed no jump in unemployment. Market expectations were raised in late November with the emergence of the Omicron variant.

A senior British health official, Michael Saunders, one of two members of the nine-strong Monetary Policy Committee who voted to raise the Bank Rate to 0.25% in November, said on December 3 there could be certain advantages in waiting to see more evidence of Omicron's impact.

The Bets in financial markets fell to just one in three after the Bank Rate hike to 0.25% in December.

They were back up to 60% on Wednesday after the shock inflation data.

On Tuesday, the International Monetary Fund urged the BoE not to succumb to inaction bias. Economists said the results of a closely watched survey of purchasing managers could have swung the outcome of the MPC's vote on Wednesday, before its announcement on Thursday.