[ad_1]
LONDON (Reuters) – The Bank of England is expected to maintain its huge support for the UK economy at full throttle on Thursday, despite a strong recovery from its pandemic crisis and rising inflation.
However, the central bank could also start to outline its plan on how it will eventually reverse its stimulus.
With over 70% of adults in Britain now fully vaccinated against COVID-19 and most social distancing rules lifted, the UK economy has recovered much of its 10% crash in 2020 and is on the way to ‘to match the United States and grow at the fastest rate among the great wealthy nations this year.
Inflation jumped to 2.5% in June and the BoE will say in a new set of forecasts that it is set to rise even further around its 2% target in the coming months.
But economists polled by Reuters expect the BoE to keep its benchmark interest rate at an all-time low of 0.1% and keep its bond buying program on track to reach its target size. of 895 billion pounds ($ 1.24 trillion) by the end of this period. year.
Two policymakers have said the time is approaching for part of the BoE’s stimulus package to be removed, echoing calls from some members of the US Federal Reserve that faces an even steeper rise in inflation.
But most of the BoE’s other rate regulators have said the acceleration in price growth is likely to prove transitory as economies around the world come to life.
The biggest risks, they say, are that unemployment rises more sharply than expected as finance minister Rishi Sunak’s employment subsidies are phased out by the end of September and the recovery collapses in due to the spread of the Delta variant of the coronavirus.
But with Britain’s gross domestic product likely to return to its pre-pandemic size by the end of this year or early 2022, the BoE wants to start explaining how it will start to wean the economy from its levels of unprecedented support.
BoE officials have said they will issue new guidance “soon” on how they can sequence the rate hike with the reduction in the stock of bonds.
Many economists expect the plan to be announced on Thursday.
Options include not reinvesting cash from maturing bonds or actively selling bonds, perhaps around or soon after the point when the BoE begins to raise rates – which investors expect. that it happens in about a year.
“This is of course relevant to the markets, but the BoE has also come under increasing political pressure to justify its balance sheet policy amid rising inflation and its interaction with fiscal policy,” the economist said. JPMorgan, Allan Monks.
Last month, a committee of the upper house of parliament asked the BoE to explain why it was not cutting its bond purchases in the face of rising inflation. Its chairman said the BoE was “addicted” to the program.
($ 1 = 0.7193 pounds)
Written by William Schomberg; Editing by Alexander Smith
Source link
