LONDON (AFP): The Bank of England could raise its main interest rate Thursday for the first time since 2018 as the reopening of pandemic-hit economies causes inflation to surge worldwide, economists say.
The BoE, led by governor Andrew Bailey, may hike borrowing costs from a record-low 0.1 percent to 0.25 percent as the UK annual inflation rate looks set to reach more than double the central bank’s target in the coming months.
The rate decision, due at 1200 GMT after a regular meeting of the BoE’s monetary policy committee, is expected to be a close call, according to experts.
Markets are waiting also to see if the BoE decides to start tapering its huge cash stimulus that has help keep the UK economy afloat during the pandemic.
– Fed taper –
The US Federal Reserve on Wednesday said it will start reducing the pace of its stimulus bond purchases later this month as the US economy makes a solid recovery from the pandemic.
But it maintained its view that inflation is transitory and Chairman Jerome Powell said the Federal Reserve “can be patient” about raising interest rates.
“We could actually see a (UK) scaling back of the bond purchases, but more importantly, I think the BoE will dare a more hawkish shift than the Fed, and announce either a rate hike, or a strong hint of a rate hike before the end of the year,” SwissQuote analyst Ipek Ozkardeskaya told AFP.
The European Central Bank and Bank of Japan are holding fire for now on rates and stimulus, but central banks in countries such as Brazil, Singapore, South Korea and New Zealand have all increased borrowing costs recently.
The Bank of Canada has ended its significant bond-buying stimulus programme, and has flagged an interest rate hike earlier in 2022 than envisaged.
The BoE’s new chief economist Huw Pill has predicted that the UK annual inflation rate risks shooting above 5.0 percent in the coming months from 3.1 percent currently.
For its part, the British government is forecasting an annual average rate of 4.0 percent over the next year — double the BoE target — after energy costs soared and reopening economies suffer from supply shortages.
European Central Bank President Christine Lagarde on Wednesday said that despite a current surge in prices, the outlook for eurozone “inflation over the medium term remains subdued”.
She said that the ECB was “very unlikely” to raise its interest rates even next year.
– ‘Tough call’ –
In the UK, the economic outlook remains unclear after the British government in September ended its furlough support scheme that kept millions of private-sector workers in jobs during the coronavirus pandemic.
The government of Prime Minister Boris Johnson predicts that the UK economic recovery will slow slightly next year.
“Today, the Bank of England is expected to raise rates, but that does not mean it will,” cautioned Markets.com analyst Neil Wilson.
“It’s going to be a tough call as the nine members of the monetary policy committee are not singing from the same hymn sheet” over timing of a hike.
As the pandemic erupted in March 2020, the BoE slashed its key interest rate from 0.75 percent and also began pumping massive sums of new cash into the economy.
It has created 450 billion pounds under its quantitative easing programme since March last year, when Britain imposed its first coronavirus lockdown.
Prior to that, it had pumped hundreds of billions of pounds worth of QE into the UK economy over a decade following the global financial crisis and Brexit.
The central bank’s total emergency stimulus package stands at 895 billion pounds.