Bank of England set to keep rates stable as inflation risks increase

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A person walks past the Bank of England in the Financial District of the City of London, London, Great Britain on June 11, 2021. REUTERS / Henry Nicholls

  • BoE announces September policy decision at 11:00 GMT
  • No expected change in discount rate or asset purchase program
  • BoE set to stop buying bonds by year-end
  • Focus on the inflation outlook, stop asset purchases earlier

LONDON, Sept. 23 (Reuters) – The UK central bank is expected to keep interest rates stable later Thursday as it nears the end point of its £ 895 billion (1.22 trillion dollars) and take a careful look at rising inflationary pressures.

Investors will want to see if more members of the Monetary Policy Committee (MPC) join external member Michael Saunders who voted in August to end the current one-year asset purchase program, to which the Bank of England got involved last November.

The BoE is ahead of other major central banks in planning to halt quantitative easing by the end of this year, and half of its policymakers estimated in August that certain preconditions for a rate hike interest were already gathered.

Late on Wednesday, the U.S. Federal Reserve paved the way for cutting back on its monthly bond purchases and signaled that interest rate hikes could follow sooner than expected, with half of its policymakers predicting that the costs of borrowing would increase in 2022. read more

In August, the BoE revised its inflation forecast upward at the end of this year to 4%, reflecting rising energy prices and post-COVID-19 bottlenecks that intensified this past. this month.

Natural gas prices have jumped across Europe in recent weeks, with knock-on effects on household energy bills, industrial chemicals and even the food supply. Read more

The key to the timing of the policy tightening is whether the BoE begins to doubt that these price hikes are temporary.

Of particular concern is whether rising inflation raises the general public’s long-term inflation expectations, leading businesses and workers to factor above-target inflation into future policy decisions. pricing and salary demands.

A monthly Citi survey on Tuesday showed the biggest monthly rise in inflation expectations for the coming year in more than 15 years after consumer price inflation in August hit a nine-year high of 3 , 2%.

“This impression could tip the balance of risks in the hawkish side for the MPC meeting,” Citi economists said. “Others could join with Michael Saunders in voting for an early end to asset purchases, and even dissent over the discount rate cannot be ruled out.”

Two new policymakers are joining the MPC this month: former European Central Bank and Goldman Sachs economist Huw Pill, who replaces Andy Haldane as chief economist, and Catherine Mann, a former chief economist of the Organization for Economic Co-operation and Development, succeeding Gertjan. Vlieghe.

Interest rate futures currently provide more than a 60% chance that the BoE will raise interest rates to 0.25% from 0.1% in February 2022, followed by another rate hike to 0 , 5% by the end of the year.

Most economists believe the BoE will wait longer and hike rates only once next year.

While the BoE expects the UK economy to return to its pre-COVID-19 size in the last quarter of this year, an increase in coronavirus cases in July has slowed growth and business surveys suggest that the momentum was difficult to regain.

Additionally, leave support payments for more than one million workers end this month, as does a temporary increase in other social assistance payments, squeezing households at a time when inflation is pushing up the economy. cost of basic necessities.

($ 1 = 0.7340 pounds)

(This story has been passed on to correct the day to Wednesday, instead of Thursday, in paragraph 4)

Reporting by David Milliken; Editing by Aurora Ellis

Our standards: Thomson Reuters Trust Principles.


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