BoE sees growing case for rate rise as inflation outlook darkens | Malay Mail
LONDON, Sept 23 — The Bank of England said the case for higher interest rates “appeared to have strengthened” on Thursday after it nudged up its forecast for inflation at the end of the year to over 4 per cent, more than twice its target rate. The BoE said it expected the overshoot to be...
channel for the latest updates.LONDON, Sept 23 — The Bank of England said the case for higher interest rates “appeared to have strengthened” on Thursday after it nudged up its forecast for inflation at the end of the year to over 4 per cent, more than twice its target rate.
The BoE said it expected the overshoot to be temporary, but two policymakers called for an immediate halt to the British central bank’s £895 billion (RM5.1 trillion) bond purchase programme, which is due to run until year-end.Sterling rose by almost a cent against the US dollar and two-year British government bond yields surged 9 basis to their highest since March 2020 as traders bet on an earlier rate rise by the BoE, which would be the first major central bank to hike since the Covid-19 pandemic.
After the decision, interest rate futures priced in a 90 per cent chance that the BoE would raise rates by February, up from just over 60 per cent before — though many economists say this is premature given the challenges to growth.“It’s clear the committee is divided on how much of an issue rising inflation poses. Given the number of headwinds facing the economy this winter, we think a rate hike is unlikely until the second half of 2022,” ING economist James Smith said. headtopics.com
Surging energy prices and bottlenecks in supply chains are raising price pressures globally as Western economies emerge from the Covid-19 pandemic but have also squeezed growth.The BoE said it had revised down its expectations for the level of gross domestic product in the third quarter by around 1 per cent from the August report, reflecting supply constraints.
But it said inflation — which hit a nine-year peak of 3.2 per cent last month — would “temporarily” rise above 4 per cent in the final quarter of the year.A jump in natural gas prices in recent weeks — which has led to the collapse of several smaller British energy suppliers and forced the government to intervene — meant inflation risked staying above 4 per cent in the first half of 2022 too, the BoE said.
7-2 split on bond purchasesThe nine-member MPC — including new members Huw Pill and Catherine Mann — voted unanimously to keep interest rates at 0.1 per cent.But deputy governor Dave Ramsden joined external MPC member Michael Saunders in voting to cap government bond purchases at £840 billion rather than using the full £875 billion programme the BoE launched in November 2020 during the pandemic.
They saw “increasing evidence from a range of global and domestic cost and price indicators that inflationary pressures were likely to persist”, according to the BoE’s policy minutes.But other MPC members were more cautious, especially as the government’s job furlough programme will end this month, with unclear implications for unemployment. headtopics.com
The benefits of waiting for more data were likely to outweigh the cost, they said — especially as tighter monetary policy would not reduce the immediate price pressures.However, the BoE said the medium-term path for interest rates was up and policymakers did not rule out raising interest rates before the central bank completes its asset purchases.
Governor Andrew Bailey, in a regular letter to finance minister Rishi Sunak explaining why inflation was above target, said the case for a rate rise had risen since August.“Some developments during the intervening period appeared to have strengthened that case, although considerable uncertainties remained,” he said.
The BoE also said previous guidance it had given — which saw policymakers split on whether certain pre-conditions for a rate had been met — was “no longer useful”. — Reuters Read more: Malay Mail »
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