Inflation spikes have been a headache for the cautious Bank of England

View of the Royal Exchange of London and the Bank of England.

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London- Bank of England Investors are looking for hints to tighten next year, although it is expected to maintain record low interest rates and maintain a large asset purchase program on Thursday.

The central bank’s latest monetary policy meeting will be the swan rhyme of hawkish chief economist Andy Haldane. “Inflationary tiger” We are calling on policy makers to cut banks’ £ 895 billion ($ 1.24 trillion) quantitative easing programs by £ 50 billion.

UK consumer prices rise It entered at 2.1% in May, surpassing expectations and surpassing the bank’s 2% target for the first time in almost two years. Core inflation, excluding volatile food and energy prices, rose from 1.3% in April to 2% in May.

Banks predict inflation will reach 2.5% by the end of the year, but there remains consensus that inflation spikes will be temporary. Meanwhile, labor markets and other economic indicators are showing signs of recovery, raising speculation that banks may point the way out of their very loose policy stance. The main policy rate remains at a historically low level of 0.1%.

The· The Federal Reserve Board recently surprised the market Inflation expectations were raised, tightening schedules were advanced, and hawks turned around in order to predict two rate hikes in 2023.

At the May meeting of the Bank of England, the Monetary Policy Committee disagreed on whether to reduce quantitative easing, suggesting a future reduction in asset purchases.

But so far, it has avoided commitments about the timing of the first rate hike, reiterating the need to prove the more important and sustainable progress of the economic recovery.

Labor, inflation, delta variants

“The execution of economic data is promising in recent weeks, and it’s clear that the economy was outperforming last summer, when regulations were low,” said James Smith, a developed market economist at ING. “.

“But the World Bank’s view of growth is already For a more optimistic purpose The spread of the spectrum, and of the new delta variants, adds an extra dimension of uncertainty (although our view for now is that the economic impact is probably not significant). It is also doubtful that the World Bank feels forced to change the expectations of the current market. “

Inflation will fall until mid-2022 as ING expects top-notch rate hikes in the first quarter of 2023, weakening the spikes caused by the economic resumption and reducing pressure on policy makers. I will. But an analyst at a Dutch bank said in a memo Monday that it “will certainly not rule out” the former hawkish pivot.

“The economic outlook is particularly sensitive to small changes in savings reserves (BoE is assumed to be around 10%), which could be triggered by a faster rewind of household savings. “.

“Wage growth is also important, and we already have case reports of companies facing hospitality staff shortages, but we feel that this is likely to be temporary.”

Similar to recent trends in the United States, the labor market has made some analysts suspect that inflation may be more resilient than previously thought. The Recruitment and Employment Confederation showed April vacancy rates rise to the steepest levels in 23 years, showing a pinch point for health, hospitality, transportation and construction.

Catherine Nace, chief European economist at PGIM Bonds, said this led to higher wages, with annual earnings growth jumping to 5.6% in the three months to April.

However, Nice hopes the BOE will adopt a wait-and-see approach during the meeting, with ever-increasing cases of the Delta Covid-19 variant, leaving a large number of British workers temporarily dismissed. It has become.

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“A major Brexit milestone towards a further trade collapse between the UK and the EU will occur later this year, adding further uncertainty to the outlook,” he said.

“Finally, unlike the United States, the British government clearly takes a hawkish position on fiscal policy, emphasizing the need to balance books and control spending. These factors are very high. Is expected to put pressure on short-term recovery and inflation. “

Neiss added that the MPC would need to emphasize vigilance to mitigate the “hysteria” of inflation.

“The BOE has an advantage over large DM peers here. As a small open economy, the MPC has successfully returned to its target, overshooting significant inflation, both in size and longevity. I have experienced it. Stable inflation expectations over the medium term. “

“Therefore, the MPC is good at telling you that you are paying attention to inflationary pressure at the next meeting, but you don’t have to hit the table about it.”

Inflation spikes have been a headache for the cautious Bank of England

Source link Inflation spikes have been a headache for the cautious Bank of England

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