Thursday, 9 December, 2021

BoE eyes first rate rise since 2018

BoE eyes first rate rise since 2018

LONDON: The Bank of England could this week raise its main interest rate for the first time in more than three years to rein in surging inflation as economies reopen from pandemic lockdowns, analysts say.

Economists are predicting that the BoE led by governor Andrew Bailey could hike borrowing costs from a record low of 0.1 per cent to 0.25 per cent at a regular policy meeting on Thursday, report agencies.

Other central banks across the globe have recently tightened policy to cool soaring prices and still more are considering following suit.

Monetary policymakers must also decide whether to taper huge emergency cash stimulus support that has kept economies afloat during the pandemic.

The US Federal Reserve is expected on Wednesday to announce plans to begin tapering its stimulus as the world’s biggest economy recovers.

The European Central Bank and Bank of Japan are holding fire for now on rates and stimulus, but central banks in countries such as Brazil, Singapore, South Korea and New Zealand have all increased borrowing costs recently.

The Bank of Canada has ended its vast bond-buying stimulus programme, and has flagged an interest rate hike earlier in 2022 than envisaged.

In the UK, the Bank of England may raise its interest rate on Thursday as it “appears more worried about the upside risks to inflation from rising underlying wage growth and higher inflation expectations than... a month ago”, said Paul Dales, economist at Capital Economics.

The BoE’s new chief economist Huw Pill told the Financial Times in late October that the UK annual inflation rate risks shooting above 5.0 per cent in the coming months from 3.1 per cent currently.

For its part, the British government is forecasting an annual average rate of 4.0 per cent over the next year after energy costs soared and reopening economies suffer from supply shortages.

Economists are not unanimous, however, in thinking the BoE will raise its interest rate as early as Thursday, even as the financial markets price in such a move.

“We can’t rule out a rate hike at this meeting - indeed, markets see it as a near certainty,” said Samuel Tombs, economist at Pantheon Macroeconomics. Britain’s growth “recovery is faltering”, he said.

While the UK economy was on course to rebound 6.5 per cent this year, it is forecast to cool slightly in 2022, the government said last week.