{"id":119391,"date":"2021-08-05T14:36:50","date_gmt":"2021-08-05T14:36:50","guid":{"rendered":"https:\/\/fin2me.com\/?p=119391"},"modified":"2021-08-05T14:36:50","modified_gmt":"2021-08-05T14:36:50","slug":"bank-of-england-sets-out-plans-to-wean-uk-economy-off-stimulus","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/bank-of-england-sets-out-plans-to-wean-uk-economy-off-stimulus\/","title":{"rendered":"Bank of England sets out plans to wean UK economy off stimulus"},"content":{"rendered":"

LONDON (Reuters) -The Bank of England set out how it would ease the economy off the huge support provided during the COVID-19 pandemic and said a \u201cmodest\u201d tightening of policy lay ahead, but it kept its stimulus at full speed despite a jump in inflation.<\/p>

FILE PHOTO: A person walks past the Bank of England during morning rush hour, amid the coronavirus disease (COVID-19) pandemic in London, Britain, July 29, 2021. REUTERS\/Henry Nicholls\/File Photo<\/figcaption>

Only one of the BoE\u2019s eight monetary policy-makers, Michael Saunders, voted to reduce the size of its bond-buying programme which remains unchanged at 895 billion pounds ($1.25 trillion).<\/p>\n

The vote to hold its benchmark interest rate at a historic low of 0.1% on was unanimous, as expected.<\/p>\n

With more than 70% of adults in Britain now fully vaccinated against COVID-19 and most social-distancing rules lifted, Britain\u2019s economy has recouped much of its 10% crash of 2020, prompting the BoE to spell out how it plans to rein in its stimulus, when the time comes.<\/p>\n

It said it would start reducing its stock of bonds when its policy rate reaches 0.5% by not reinvesting the proceeds of maturing debt, as long as that made sense for the economy.<\/p>\n

The BoE would then consider actively selling down holdings when the rate reaches at least 1%.<\/p>\n

Previous guidance, from June 2018, said the BoE would not start to unwind bond purchases until Bank Rate was near 1.5%.<\/p>\n

Governor Andrew Bailey said a lot had changed in the past three years and \u201cif we stuck with 1.5%, when you look at the market curve, that would be tantamount to saying that we would actually never reduce the (missing word) balance sheet as things stand today.\u201d<\/p>\n

The Monetary Policy Committee said \u201csome modest tightening of monetary policy over the forecast period is likely to be necessary\u201d over its three-year forecast period.<\/p>\n

Sterling was little changed from its level against the U.S. dollar and the euro after the announcement. British government bond prices were slightly lower. Investors continued to price in a first 15 basis-point rise in Bank Rate in about a year\u2019s time.<\/p>\n

\u201cThe Bank has given its fair share of false signals on this in the past, but the broad messaging is consistent with a number of other global central banks that are preparing markets for the very gradual tapering of monetary support,\u201d Luke Bartholomew, an economist at Aberdeen Standard Investments, said.<\/p>\n

The Federal Reserve\u2019s top policymakers are also showing signs of a split about how quickly the U.S. central bank might need to scale back its quantitative easing plan.<\/p>\n

Bailey stressed the BoE would not hesitate to act if the outlook for inflation was in jeopardy.<\/p>\n

JOB VACANCIES SEEN AS KEY CHALLENGE<\/h2>\n

Bailey said unemployment was no longer expected to rise when finance minister Rishi Sunak\u2019s job-protecting furlough scheme is phased out at the end of September, and the key challenge for the economy was instead whether employers could fill vacancies.<\/p>\n

A big jump in wages could add to British inflation which hit 2.5% in June and which the BoE said was now on course to rise even further above its 2% target in the months ahead, touching 4.0% in late 2021 and early 2022, its highest in 10 years.<\/p>\n

In May, it had forecast a peak of 2.5%.<\/p>\n

But the BoE said it still thought the jump in inflation would prove to be temporary.<\/p>\n

It forecast that inflation in two years\u2019 time would be just above its 2% target – a stance investors typically take as a signal that rates might rise slightly more than has been priced in by markets.<\/p>\n

But BoE Deputy Governor Ben Broadbent said the BoE\u2019s inflation forecast should not be read as a policy signal, and noted that inflation was below target in three years\u2019 time.<\/p>\n

The BoE said it still expected Britain\u2019s economy would grow by 7.25% in 2021, unchanged from its May forecast, one of the fastest expansion rates among big, rich economies. It raised slightly its estimate for growth in 2022 to 6% from the previous forecast of 5.75%.<\/p>\n

The MPC is due to return to its full strength of nine members once it appoints a new chief economist.<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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