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At the end of Thursday’s meeting, the Bank of England kept its benchmark interest rate at 0.1%. And also left unchanged the amount of asset purchases from the market at £895 billion. This is what analysts and markets were expecting. However, there are also nuances.
GBP/USD
What nuances are we talking about? It is the rapid recovery of the UK economy. And a rapid rise in inflation.
The Bank of England has raised its economic growth forecast for 2022 to 6% from May’s 5.75%. It also noted that UK GDP will grow by 5% in the second quarter of 2021, slightly higher than expected in May.
The regulator notes that inflation in the country has accelerated markedly, exceeding the 2% target. Price growth is predicted to accelerate temporarily in the near future, reaching 4% in the fourth quarter of 2021.
In particular, the Bank of England has stated that some modest monetary policy tightening is likely to be required over the forecast period if the economy develops in line with its forecasts. The Bank of England also indicated that the threshold for winding down its purchases under the quantitative easing programme was lower than previously.
What can this lead to?
The UK could be the first among the world’s leading economies to start tightening monetary policy. It does not have strong unemployment problems like the US. And all the covenants that are constantly being imposed across the EU have been lifted.
A reduction of asset purchases could start to take effect by the end of 2021. And the first interest rate hike will take place in the 2nd quarter of 2022.
It seems that both events are still a long way off. However, the markets are living with expectations. And amid expectations of an ultra-soft monetary policy in Japan, the EU and the USA, the British pound could start to rise at a rapid pace. Only a hint from the Bank of England at the next meeting in September this year will be enough for this to happen.
14.30 New jobs created outside of agriculture in the US in July
14.30 Canada Employment Change for July
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