Economists say that despite inflation concerns, the Bank of England may still keep interest rates unchanged
Economists said that the Bank of England may be deeply concerned about rising inflation on Thursday, but kept interest rates at the lowest level in history, as a wave of Omicron coronavirus infection swept the UK.
Despite speculation in the financial markets that the Bank of England’s Monetary Policy Committee might grit the teeth and raise interest rates from 0.1% to 0.25% at midday, most economists believe that most members will vote against it.
Even the most hawkish members of the committee, including Outside member Michael Sanders, It has been hinted in the past that the new facts surrounding the virus may require stopping for further thinking.
Due to the tight labor market and the November inflation rate of 5.1%, its Highest level in ten years, This The International Monetary Fund has asked the central bank to take action And to avoid “inaction prejudice,” but economists lined up on Wednesday to say that the Bank of England will keep tightening.
Krishna Guha of Evercore ISI stated that he believes the Bank of England will postpone rate hikes, which will be “reflected in understanding Omicron and its balance of supply and demand and the implementation of new activity restrictions in the UK”.
The Federal Reserve announced after its meeting on Wednesday that it will accelerate the pace of reducing its asset purchase plan and predicts that it will raise interest rates three times next year in response to the rise in inflation in the United States in November to a multi-decade high. The European Central Bank is also expected to announce a slowdown in its asset purchase plan at its meeting on Thursday.
In the United Kingdom, the asset purchase plan is scheduled to end in January, and the focus is on the next step of raising interest rates from the current level of 0.1% to cool spending and reduce inflation.
Despite all Economic conditions for raising interest rates Set by the Monetary Policy Committee after its November meeting, the additional uncertainty of the Omicron variant provides an opportunity for the Bank of England to wait until its next meeting in February.
Alan Monks, a British economist at JP Morgan Chase, said that the spread of the virus, with 78,000 cases reported on Tuesday, would pose a serious short-term risk to the economy. He expects this to be short-lived, and therefore expects the Monetary Policy Committee to remain tough when it does nothing on interest rates.
“We expect that the Monetary Policy Committee tomorrow will retain similar wording as in November, saying that interest rate hikes may still be needed in the next few months,” Monks said.
But with strong economic data, some economists support financial market participants who are betting on interest rate hikes. George Barkley, chief UK and euro zone economist at Nomura Securities, said: “We still believe that the bank will raise interest rates tomorrow to prepare for more substantial tightening next year.”