Bank of England holds stimulus, record-low rate
LONDON: The Bank of England on Thursday maintained its stimulus amount and record-low interest rate, even as it warned that UK annual inflation would top 4 per cent this year.
The BoE’s nine-strong monetary policy committee (MPC) voted unanimously to hold its key borrowing cost at 0.1 per cent, a statement said.
Policymakers voted 7-2 in favour of keeping its so-called quantitative easing stimulus at almost £900 billion ($1.2 trillion, one trillion euros).
The decision comes as the global central banks grapple with when to withdraw ultra-loose monetary policy and massive stimulus as the Covid-blighted economies start to recover.
Thursday’s news came one day after the Federal Reserve said it would soon begin tapering its own emergency aid.
“Two (MPC) members preferred to stop the current asset purchase programme as soon as practical after this meeting rather than continuing it until around the end of the year, as currently planned,” the BoE said.
“Continuing with [the] asset purchases when CPI inflation was above 3 per cent and the output gap was closed might cause medium-term inflation expectations to drift up further.”
The central banks have embarked on huge purchases of commercial bonds, resulting in massive cash amounts swirling around the world economy.
Some analysts argue that this fuels inflation, which is on the rise in any case after the pandemic caused supply shortages.
The BoE also warned on Thursday that the annual inflation was now expected to breach 4 per cent, more than double its target level, in the fourth quarter as a result of high energy and goods prices.
The annual inflation rate had already spiked in August to a near-decade high of 3.2 per cent after the Covid-hit economy reopened.
“Against a backdrop of robust goods demand and continuing supply constraints, global inflationary pressures had remained strong and there were some signs that the cost pressures might prove more persistent,” read minutes from the gathering.
“Oil prices had remained elevated and global shipping costs had continued to rise. Wholesale gas prices had risen substantially across Europe.”
The bank also warned that “considerable uncertainties remain” over the economic outlook, including from the end of the next week of the state’s furlough jobs support scheme.
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