Bank of England charts path between Covid and inflation

Published : 18 Mar 2021, 15:21

Sahos Desk

The Bank of England is expected Thursday 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 percent 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 o895 billion ($1.2 billion, 1.0 billion euros).

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 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 analyst Matthew Weller.

Commentators also remain mindful of a possible inflationary surge, as many Britons seek to splurge savings hoarded during the lockdown. Britain suffered one of the world’s worst coronavirus outbreaks with more than 125,000 deaths.

The pandemic sparked a 10-percent 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 the 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.

The UK economy slumped 2.9 percent in January from December, after the imposition of England’s third lockdown. Britain’s EU goods exports meanwhile suffered a record 41-percent collapse in January, the first month since its final Brexit divorce.

“With all the uncertainty between Brexit, the ongoing Covid pandemic, and unprecedented fiscal/monetary stimulus, risk-averse central bankers may be more likely to stick to the status quo until the next move is clearer,” noted Weller.

Source: BSS

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