Bank of England keeps stimulus despite inflation woesEuropost
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.