Bank of England keeps stimulus despite inflation woes

Photo: AP

The UK central bank vowed to keep its stimulus measures in place despite mounting arguments linked to an increase of consumer prices across Britain. Earlier two BoE board members - Deputy Governor Dave Ramsden and Michael Saunders called for the end of the 900bn pounds worth bonds buying scheme but their arguments were dismissed, Reuters elaborated.

Britain's economy is enjoying a strong rebound from its 10% slump in 2020, when the country suffered high Covid-19 death toll and longer lockdowns than most other European countries.

Consumers are now back in shops, bars and restaurants and the consumer demand fuels a rise in prices and inflation has sped past the BoE's 2% target and is on course to surpass 3%.

Key to the BoE leaving the stimulus programme unchanged is its view that the jump in inflation will prove short-lived. In May, the BoE said it expected consumer price inflation would peak at about 2.5% in late 2021 although it was then forced to raise that to above 3% in an interim forecast in June. The new quarterly projections are likely to see a new peak of 3.5%, which would spoil the BoE's closely watched forecasts for inflation in two and three years' time to its 2.0% target.

Investors are also waiting for the BoE to publish new guidance on how it would sequence raising interest rates with shrinking its bond-buying programme, either by not reinvesting the cash from maturing bonds or by actively selling bonds.

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