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Bank of England Governor Andrew Bailey said the rising optimism came with a « big dose of caution » (Jonathan Brady / PA).
By Holly Williams, Assistant City Editor, PA
Bank of England rate setters are expected to stay on hold on Thursday in hopes that the vaccine rollout will help the economy recover faster than initially thought.
Economists expect the bank to raise rates at a record low of 0.1% and holds its quantitative easing program at £ 895 billion after official data showed the economy was hit less than feared after the last lockdown.
The bank’s governor Andrew Bailey, said on Monday that he sees the future of the economy more positively and now expects it to return to pre-pand levels at the end of the year thanks to the “great” success of the vaccination program emie will return.
Chances are the Bank of England’s Monetary Policy Committee is tough at its March meeting. Howard Archer, EY Item Club
But he added that his heightened optimism comes with a « big dose of caution, » with uncertainty about the path of the pandemic remaining.
The rate decision is made amid growing concerns about it a year-end inflation spike driven by the economic recovery as the British are expected to use up their lockdown savings.
After the financial markets predicted negative interest rates less than two months ago, they are now planning rate hikes in next year to cool inflation.
Mr Bailey confirmed that the Bank’s Monetary Policy Committee (MPC) would review the inflation outlook at this week’s meeting.
However, he added that the central bank does not expect that inflation – currently at 0.7% – will reach the proposed levels between 4% and 5%.
Howard Archer, Chief Economic Advisor of the EY Item Club, sa gte: « Chances are that the Bank of England’s Monetary Policy Committee (MPC) is stuck at its March meeting.
» At the February meeting, all MPC members voted for no change in monetary policy – as they said that they are fully prepared to take further stimulus measures if the economy needs it, events since February appear to have been relatively favorable overall and to justify unchanged monetary policy. ”
There is a growing likelihood that the Bank of England could tighten monetary policy in 2022, although it is currently more likely that Howard Archer, EY Item Club
official figures last week showed in early 2023 that the economy contracted 2.9% in January as the lockdown took its toll. However, this was less than expected by experts and far from the double-digit decline in April last year at the height of the first wave.
The bank’s decision also comes in the wake of Chancellor Rishi Sunak’s budget to push ahead with the support measures, as well as Prime Minister Boris Johnson’s long-awaited roadmap to ease the lockdown.
Mr Archer said calls for further action from the bank will ease from the second quarter onwards when the recovery sets in.
« There is one growing likelihood that the Bank of England could tighten monetary policy in 2022, although it is currently more likely early 2023, « he said.
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