BoE faced decision day, sandwiched between inflation and risk of slowdown

London — The Bank of England will announce the long-awaited policy decision of the year on Thursday. It says it is waiting to raise borrowing costs from the lowest ever or to make sure the post-blocking economy is ready to raise rates. ..

The Central Bank of the United Kingdom will announce at 1200 GMT.

Investors have fully priced to raise bank rates from 0.1% to 0.25%. This will allow the BoE to raise interest rates by the world’s first major central bank since the coronavirus pandemic. Economists are much more uncertain.

The Federal Reserve Board of Governors announced on Wednesday that it would begin curtailing its bond purchase program this month. This is the first step towards the first US rate hike that was not expected until mid-2022.

European Central Bank Governor Christine Lagarde said Wednesday that the ECB is very unlikely to raise rates next year.

Economists who closely follow the BoE are more divided than investors about the possibility of a rate hike on Thursday.

A Reuters poll released last week showed that most analysts believed the BoE would put interest rates on hold, but many said the decision was too close to call.

Inflation and household spending have set the BoE more than double the 2% target as the government curtails stimulus aid, including work, said Anabota, head of economic research at Euler Hermes, part of Allianz. Supports the scheme that said it faced the opposite challenge of squeezing and raising taxes.

The UK economy also faces risks due to post-Brexit trade tensions and the recent increase in COVID-19 cases.

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

Policy dilemma

“By not acting, the Bank of England (BoE) is at further risk of causing inflation,” Boata said.

“But it is too early to embark on an early monetary tightening cycle, which could increase the risk of a technological recession, especially as the UK will be the first major economy to begin fiscal consolidation in 2022. “

Andrew Bailey
Bank of England Governor Andrew Bailey will take a photo on March 16, 2020, on the first day of his new role at the Central Bank of London, England. (TolgaAkmen / Pool via Reuters)

Bank of England Governor Andrew Bailey talked about the need to act to curb inflation expectations, with three of the bank’s nine policy makers expressing similar concerns.

But two others say that raising interest rates does nothing to deal with the main cause of inflation: the sudden resumption of the global economy that caused bottlenecks and supply problems.

The remaining three MPC members have not made clear comments on their views in public for weeks, leaving the results of the meeting at Knife Edge.

The Bank of England will also announce whether it will allow the £ 895 billion ($ 1.22 trillion) bond purchase program to be completed as planned.

In September, two MPC members resolved to stop purchasing early as there are signs that the economy is recovering rapidly from a nearly 10% crash caused by the 2020 coronavirus.

However, Bailey and his colleagues say it may be possible to raise interest rates while allowing the execution of a quantitative easing (QE) program.

Bailey will lead a press conference at 1230 GMT, where he may have to answer awkward questions no matter what the MPC’s decision is.

“BoE will face challenges in explaining quantitative easing between current macro backgrounds and recent communications and the consistency of interest rate decisions,” said Alan Monks, economist at JP Morgan. rice field.

Economists are controversial about the possibility of a rate hike on Thursday, but agreed that the BoE will steadily rise investors by 2022 and move away from the bet that it will reach about 1.25 percent by the end of next year. There is.

The BoE may choose to predict inflation below 2% in a few years, based on current market prices.

($ 1 = 0.7321 pounds)

By William Schomberg