Bank of England hints at rate rise amid buoyant UK recovery

Aug 5, 2021, 4:15 AM | Updated: 9:12 am
FILE - In this Wednesday, March 11, 2020 file photo, pedestrians wearing face masks pass the Bank o...

FILE - In this Wednesday, March 11, 2020 file photo, pedestrians wearing face masks pass the Bank of England in London. The Bank of England released a statement Thursday Aug. 5, 2021, announcing it has kept its main interest rate unchanged at the record low of 0.1% and says it expects the British economy to reach its pre-pandemic level by the end of the year. (AP Photo/Matt Dunham, FILE)

(AP Photo/Matt Dunham, FILE)

LONDON (AP) — The Bank of England indicated Thursday that interest rates may be on the up soon as it painted a fairly rosy picture about the near-term prospects for the British economy following the lifting of lockdown restrictions in the wake of the rapid rollout of coronavirus vaccines.

In a statement accompanying its decision to keep the bank’s main interest rate unchanged at the record low of 0.1%, the rate-setting Monetary Policy Committee said “some modest tightening of monetary policy” over the coming period “is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.”

The most recent figures showed the annual rate of inflation in the U.K. at 2.5% following a spike largely in energy prices. The latest forecasts show the bank expects inflation to pick up to 4% in 2021, which would be the highest level since 2011 and double the bank’s target.

“There are good reasons to believe that above-target inflation will be temporary,” Bank Governor Andrew Bailey told a press briefing. “If this outlook appears to be in jeopardy, the MPC will not hesitate to act.”

For now, the eight-member panel unanimously voted against any increase in rates. The panel also maintained the bank’s monetary stimulus at current levels though one of the eight members voted to reduce the level of asset purchases from 875 billion pounds ($1.2 billion) to 830 billion.

Armed with quarterly economic projections, also published Thursday, the rate-setting panel said “a waning impact” from COVID-19 would boost demand growth and help the British economy reach its pre-pandemic level by the end of the year.

It said the British economy is set to rebound by 7.25% this year following the lifting of lockdown restrictions, unchanged from its previous projection. However, it modestly upgraded its forecast for next year to 6% from 5.75%.

However, it cautioned that the more contagious delta variant, which has seen coronavirus infections spike sharply in the U.K. over the past couple of months, and voluntary social distancing could pose a risk to the outlook.

Overall, growth is expected to slow toward more normal rates in the months and years to come, partly reflecting lower government spending as many pandemic programs, such as a salary support scheme, end.

One uncertainty cited was how the economy will adjust to the end of the furlough scheme, which was introduced at the start of the pandemic last March to ensure unemployment didn’t rise substantially when lockdown restrictions were imposed. Under the program, the government paid 80% of the salaries of those workers unable to work because of lockdown measures.

The program, which is being phased out and due to end at the end of September, helped support over 11 million people but the number now is down below the 2 million mark as many sectors have reopened, notably hospitality. It kept a lid on unemployment, which remains relatively low at below 5%.

The committee also warned of a “more pronounced period” of above-target inflation in the near term than expected in May but said that its overall view is that cost pressures will prove “transitory.”

The bank also outlined its approach to removing economy-boosting measures when necessary, saying it would start to unwind its quantitative easing program when the man interest rate reaches 0.5%, which is lower than the previous threshold.

Economists said the first interest rate rise could come as soon as next year.

“If there is no other major wave of COVID-19 during the winter and the economy performs in line with the bank’s forecasts, the first rate rise is likely to come in the spring or early summer of next year,” said Ian Stewart, chief economist at Deloitte.

___

Follow AP’s pandemic coverage at: https://apnews.com/hub/coronavirus-pandemic

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

This handout photo taken and provided by the Imperial Household Agency of Japan shows Sri Lanka's P...
Associated Press

Sri Lanka begins crucial debt restructuring talks with China

COLOMBO, Sri Lanka (AP) — Sri Lanka’s president said Thursday his government has started debt restructuring discussions with China, an important step toward finalizing an International Monetary Fund rescue of the island nation from its worst economic crisis. President Ranil Wickremesinghe told Parliament on Thursday that the initial talks will continue after China’s Communist Party […]
1 hour ago
Destroyed Russian equipment is placed in an area at the recaptured town of Lyman, Ukraine, Wednesda...
Associated Press

Russian rockets slam into Ukrainian city near nuclear plant

KYIV (AP) — Seven Russian rockets slammed into residential buildings in Zaporizhzhia before dawn Thursday, killing two people and trapping at least five in the city close to Europe’s biggest nuclear power plant, the governor of the mostly Russian-occupied region said. The strikes came just hours after Ukraine’s president announced that the country’s military had […]
1 hour ago
New York Yankees' Aaron Judge stands in the dugout after his solo home run during the first inning ...
Associated Press

Fan who caught Aaron Judge’s 62nd HR offered $2M for ball

The owner of a sports memorabilia auction house says he has offered $2 million to the fan who caught Aaron Judge’s American League-record 62nd home run. JP Cohen, president of Memory Lane Inc. in Tustin, California, told The Associated Press on Wednesday that he has texted and emailed Cory Youmans, the man who caught Judge’s […]
1 day ago
FILE - Britain's Prime Minister Liz Truss makes a speech at the Conservative Party conference at th...
Associated Press

With division at home, UK’s Truss seeks to thaw EU relations

LONDON (AP) — After an acrimonious divorce and years of bickering, Britain’s government looks like it wants to make up with the European Union. The tax-cutting economic plans of the country’s new prime minister, Liz Truss, has her feuding at home with financial markets, the opposition and chunks of her own Conservative Party. But abroad, […]
1 day ago
This undated photo provided by Merced County Sheriff's Office shows Jasleen Kaur, left, and Jasdeep...
Associated Press

‘Our worst fears’: Kidnapped baby, parents, uncle found dead

SAN FRANCISCO (AP) — A baby girl, her parents and uncle were found dead in a central California orchard two days after they were kidnapped at gunpoint from their business, police said. “Our worst fears have been confirmed,” Merced County Sheriff Vern Warnke said at a Wednesday night news conference. Warnke did not release any […]
1 day ago
A currency trader walks by the screen showing the foreign exchange rate between U.S. dollar and Sou...
Associated Press

Asian stocks mixed on strong US hiring, OPEC oil output cuts

BEIJING (AP) — Asian stocks were mixed Thursday after strong U.S. hiring dampened hopes the Federal Reserve might ease off plans for interest rate hikes and the OPEC group of oil exporters agreed to output cuts to shore up prices. Tokyo and Seoul advanced while Hong Kong and Sydney declined. Chinese markets were closed for […]
1 day ago

Sponsored Articles

...
SCHWARTZ LASER EYE CENTER

Key dates for Arizona sports fans to look forward to this fall

Fall brings new beginnings in different ways for Arizona’s professional sports teams like the Cardinals and Coyotes.
...
Dr. Richard Carmona

Great news: Children under 5 can now get COVID-19 vaccine

After more than two years of battle with an invisible killer, we can now vaccinate the youngest among us against COVID-19. This is great news.
(Courtesy Condor)...
Condor Airlines

Condor Airlines shows passion for destinations from Sky Harbor with new-look aircraft

Condor Airlines brings passion to each flight and connects people to their dream destinations throughout the world.
Bank of England hints at rate rise amid buoyant UK recovery