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the The Bank of England has a big job on Thursday, balancing the need to maintain the economic recovery while curbing inflation and speculation on rising interest rates.

Construction until The Monetary Policy Committee’s announcement due at 12 p.m. London time was dominated by a surge in consumer price growth above the BOE’s 2% target for the first time in close two years. It is the only cloud on the horizon of what has been a sunny outlook for the economy.

While a growing minority of economists have advanced expectations for when the BOE will tighten monetary policy, millions of workers remain unemployed or on leave. This left the Treasury and the central bank eager to maintain the stimulus until the recovery is more entrenched. These forces indicate a change in tone, but not in politics.

“There will be a little less action and a little more conversation,” said George Buckley, UK chief economist at Nomura International Plc in London. “It would be difficult to go from a situation where, a little over a month ago, you sanctioned the continuation of QE, to go to: ‘We have to get rid of QE or even tighten by raising the rates of ‘interest. This is a very big change.

Bet rate

Talks shifted from negative rates as BOE tightens policy

Source: Bank of England

Here are the questions that guided the BOE’s decision:

Economic context

the The Federal Reserve rekindled concerns about inflation when it signaled that U.S. monetary support could be reduced faster than expected.

Given the current strength of the rebound in the UK – manufacturing and real estate are advancing, payrolls are rising, consumers are optimistic about the outlook – the BOE will need to recognize the recent positive signs. But against that, there are risks with the delta variant of the coronavirus and uncertainty as to whether the current growth will continue into the second half of the year.

Outlook and orientation

Investors and economists will scan the MPC’s statement for any sign of a preferred course of action. The majority, however, expect the meeting to put the BOE on a waiting pattern until at least August, when officials will have more information on the reopening of the economy, postponed to mid- July, and new forecasts.

The BOE benchmark rate is at an all-time high of 0.1% and the nine MPC members are expected to vote unanimously this week to keep it going. On bond buying, the vote will be 8-1 as Chief Economist Andy Haldane pushes once again to cut stimulus.

Forecasts for action

Some banks have recently changed their minds and the idea of ​​a rate hike in 2022 has become less aberrant. Credit Suisse Group AG expects the BOE to hike rates next year, sooner than expected, as will Bank of America.

Money markets are betting on a 15 basis point increase by June of next year. This is almost double compared to before the last monetary policy meeting in May.

What Bloomberg Economists Are Saying …

“Our baseline scenario is that the first rate hike will occur in mid-2023. But there is a growing risk that the rise in unemployment will be less severe at the end of this year, which would strengthen the case for a move in the second half of 2022. “


Change face

This week’s MPC meeting will be the last for Haldane. He has been optimistic about the economy, describing it as “a gangbuster” and saying that the risks of inflation have created a “dangerous time” for politics.

In the record of the discussion, the focus will be on any suspicion of mood swings among the other eight committee members. Once among the most dovish, Gertjan Vlieghe said last month that rate hikes could take place early next year in a “up” scenario for the economy. Vlieghe leaves later in the summer and will be replaced by Catherine Mann, the former chief economist of Citigroup Inc. and the OECD.

refers to BOE Balances Recovery Boost Against Inflation: Decision Guide

Reasons to wait

But economists say lingering uncertainties will cause officials to try to remain cautious. Unemployment later this year is a key risk and it is unclear how well the job market will hold up once government support ends.

The bank itself has been saying for months that it has no plans to change policy until inflation rises steadily. The BOE is due to update its inflation and growth forecasts in August and also around this time is expected to receive a staff report on how to unwind its stimulus measures when the time comes. These events give the MPC good reason to suspend action at Thursday’s meeting.

“The focus on the strength of the recovery and the labor market should always push the MPC in a more hawkish direction,” said Allan Monks, economist at JP Morgan Chase & Co. The BOE is poised to be ahead of the curve. this next key phase of the recovery.

– With the help of James Hirai and Andrew Atkinson

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