LONDON (AFP) – The Bank of England (BoE) is expected to maintain the status quo on monetary policy as it mulls Britain’s post-pandemic recovery alongside rising inflation fears that have rattled the bond market.
The BoE will announce the outcome of its latest gathering at 1200 GMT, with policymakers likely relieved over Britain’s rapid coronavirus vaccine drive which has brightened the economic outlook.
Economists predict the British central bank will again hold its key interest rate, which was slashed to just 0.1 per cent one year ago following the eruption of the deadly COVID-19 crisis.
The bank is also set to keep its quantitative easing (QE) stimulus, which aims to boost lending, at GBP895 billion (USD1.2 billion).
Bond markets have been shaken in recent weeks by fears that the global stimulus-fuelled recovery will fan inflation and force interest rates hikes sooner than otherwise expected.
“While some observers were speculating about the potential for negative interest rates in the United Kingdom (UK) at the start of the year, the BoE’s bigger concern lately has been rising interest rates and fears of accelerating inflation as the economy gradually opens up in the coming months,” warned Forex.com analyst Matthew Weller.
Commentators also remain mindful of a possible inflationary surge, as many Britons seek to splurge savings hoarded during lockdown. Britain suffered one of the world’s worst coronavirus outbreaks with more than 125,000 deaths.
The pandemic sparked a 10-per cent slump of UK economic output last year – the worst annual performance in more than three centuries – as Brexit also weighed.
However, the nation has now given nearly 25 million people a first dose of a COVID vaccine, as it targets a phased exit from current lockdown restrictions – and a return to normality.
Bank of England Governor Andrew Bailey forecast Monday that economic activity will return to its pre-COVID level in late 2021.
The BoE had previously forecast early 2022 for such a recovery.
“That’s good news. But let’s be realistic – it’s not more than getting back to where we were pre-Covid,” Bailey cautioned.