LONDON – The Bank of England (BoE) today updates its monetary policy and forecasts with eyes on the inflation outlook as surging prices worldwide pose a threat to economic recovery.
While the lender is widely expected to keep its main interest rate at a United Kingdom record low of 0.1%, it could detail how BoE plans to begin tapering its emergency cash stimulus programme, or quantitative easing (QE), according to economists.
This is because Britain has lifted most Covid-19 restrictions, enabling its economy to press on with recovery despite worries about the fast-spreading Delta variant.
At the same time, analysts said BoE will be mindful of an expected jump in British unemployment after the UK government next month ends its furlough scheme that has kept millions of Britons in private sector jobs during the pandemic.
The BoE announcements are due at 1100 GMT.
“The need for emergency stimulus measures is receding, but BoE is unlikely to taper QE at this meeting,” said ThinkMarkets analyst Fawad Razaqzada.
“It could nevertheless prepare the market for tapering in the months ahead. This is because inflation is expected to fall back after rising well above the bank’s 2.0% target.”
BoE Governor Andrew Bailey and the bank’s other policymakers have gathered this week for a regular policy meeting as official data showed UK annual inflation soaring close to a three-year peak.
The consumer price index hit an above-target 2.5% in June as Britain lifted virus curbs.
Markets worldwide are on red alert over galloping inflation – driven largely by surging oil and other commodity prices – since it could force policymakers to raise interest rates sooner than expected, hindering recovery.
BoE’s key task is to use monetary policy to keep annual UK inflation close to a government-set target level of 2.0% to preserve the value of the pound.
‘Temporary surge’
“While BoE will (today) upgrade its near-term forecasts for inflation... it will probably still judge that the rise is transitory,” said Ruth Gregory, senior UK economist at Capital Economics.
The Federal Reserve and European Central Bank also insist that high inflation will be temporary, causing no change to their own ultra-low rates and economic support measures.
As the pandemic erupted in March last year, BoE slashed its key interest rate to the current record-low level.
It also began pumping massive sums of new cash into the economy.
The bank has created £450 billion (RM2.6 trillion) under its QE programme since March last year, when Covid-19 prompted Britain’s first lockdown.
Prior to this, it had pumped hundreds of billions of pounds worth of QE into the economy over a decade following the 2008-09 global financial crisis and Brexit.
The central bank’s total emergency stimulus package stands at £895 billion. – AFP, August 5, 2021
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