Recovery is gradual as a result of the pandemic and universal supply chain bottlenecks, BoE governor, Andrew Bailey said.
Despite soaring inflation and fears of runaway domestic energy costs, the Bank of England (BoE) is on Thursday expected to maintain its course on interest rates and stimulus. The British central bank’s monetary policy committee is expected to maintain its key rate at a record-low 0.1%.
After the pandemic-hit economy opened, the annual inflation rate escalated in August to reach a nine-year high of 3.2%. Britain’s flat recovery and the impact of the end of the government’s furlough job support initiatives next week will make policymakers to be mindful.
A rise in coronavirus cases and supply shortages offset a further lifting of lockdown restrictions prompting an agonizingly slow recovery in July. While predicting no change in policy from the BoE, Pantheon Macro analyst Samuel Tombs, stated:
“Recent downside news on economic activity will counterbalance the upside news on inflation.”
Inflation could soon strike 4.0%, double its target, impacted by a global supply crisis that was sparked by the pandemic, the British central bank warned. Echoing the US Federal Reserve and the European Central Bank, the BoE still argues that high inflation will be temporary.
Fears of rocketing energy bills have sparked the markets, due to whole gas prices soaring this week to a record high, as demand peaks during the cold northern hemisphere winter. Although the UK economy recovered 4.8% in the second quarter, it grew by an anemic 0.1% in July.
Increasing Covid-19 cases have slowed the US economic recovery. However, the US Fed said on September 22 that it may soon “start” removing stimulus to salvage the economy. UK’s economic recovery is depressing as a result of the pandemic and universal supply chain bottlenecks that have formed, according to Bank of England Governor, Andrew Bailey.
The policy-setting Federal Open Market Committee (FOMC) said in a statement after while concluding its two-day meeting that the economy has healed to the point that the central bank may slow the pace of its massive monthly bond purchases “if progress continues broadly as expected.”
Capital Economics analyst Ruth Gregory commented:
“The central bank is getting closer to raising interest rates, but the gloomy tone of the recent news on the global and UK economies will have reduced the pressure to tighten policy. So a rate rise this month does not seem likely.”
The decision on Thursday coincides with global central banks’ evaluation of whether they should unwind massive stimulus measures as economies recover. BoE’s cash stimulus, pumping around the UK economy, amounts to nearly 900 billion pounds ($1.2 trillion, 1.0 trillion euros).
A shortage of carbon dioxide, which is vital for the food industry, has been prompted by soaring energy costs which compounded the inflation outlook this week. Warnings of further pressure on food supplies and prices have been triggered by the CO2 shortage. The food sector has already been hard hit by an insufficient number of lorry drivers.