LONDON, Aug 5, 2021 : The Bank of England Thursday predicted the UK annual inflation rate to continue surging this year as pandemic-hit economies reopen, but kept its record-low interest rate and emergency stimulus intact.
The BoE forecast inflation reaching four percent from 2.5 percent currently, adding to fears that a spike in prices worldwide will force central banks to hike interest rates sooner than expected, in turn hindering economic recovery.
Following a regular meeting, the BoE left its interest rate at an all-time UK low of 0.1 percent. It said that “inflation is projected to rise temporarily in the near term, to four percent… owing largely to developments in energy and other goods prices”.
The BoE then expects the inflation rate to fall close to its 2.0-percent target. Britain’s Consumer Prices Index hit 2.5 percent in June as its government led by Prime Minister Boris Johnson lifted virus curbs.
The UK has lifted most lockdown restrictions, enabling its economy to press on with recovery despite worries over the fast-spreading Delta variant of the coronavirus.
– Stimulus unchanged –
Steered by governor Andrew Bailey, the BoE at its latest meeting decided also against tapering the vast amount of cash stimulus pumping around the UK economy. As the pandemic erupted in March 2020, the BoE slashed its key interest rate to the current record-low level.
It also began pumping massive sums of new cash into the economy. The bank has created £450 billion ($627 billion, 529 billion euros) under its quantitative easing (QE) programme since March last year, when Covid-19 prompted Britain’s first coronavirus lockdown.
Prior to this it had pumped hundreds of billions of pounds worth of QE into the UK economy over a decade following the 2008-09 global financial crisis and Brexit.
The central bank’s total emergency stimulus package stands at £895 billion. Analysts said the BoE will be mindful of an expected jump in British unemployment after the UK government next month ends its furlough scheme that has kept millions of Britons in private-sector jobs during the pandemic. Markets are looking to see when central banks will begin to scale back their stimulus packages
Following weak US jobs data on Wednesday, Federal Reserve vice chairman Richard Clarida raised the prospects of the US central bank scaling back its huge stimulus, or bond-buying, programme and lifting interest rates as soon as 2023.
The ultra-accommodative measures have been a key driver of the rally in global financial markets from their nadir in March 2020. Clarida said that as the economy emerges from the pandemic, tapering of the quantitative easing scheme could begin later this year, with analysts tipping a possible move in November. (AFP)