London (awp / afp) – The Bank of England (BoE) could decide on Thursday to raise its key rate again to counter inflation that exceeds its forecasts, acting faster than the ECB and the Fed, analysts believe.
After being taken by surprise by the BoE’s rate hike in December, investors now believe that with inflation hitting 5.4% year on year in December, the highest since 1992, the Bank will be forced to ‘to act.
The monetary institution, which officially targets 2% inflation, has not raised its rates in two consecutive meetings since 2014.
Sanjay Raha, an analyst at Deutsche Bank, even wonders if the BoE is not already behind, due to inflation but also to a lack of workers on the British labor market.
The BoE, which in December was the first central bank of a G7 country to raise its rate, is in any case outpacing the US Federal Reserve (Fed), which just signaled at its first meeting of 2022 that she planned to do the same in March.
Above all, the European Central Bank (ECB), which will announce its monetary policy decision on the same day as the BoE, has not yet indicated that it intends to raise its rates this year.
The latest interventions by the bosses of the two monetary institutions in January justify these policy differences.
Where BoE Governor Andrew Bailey worried that energy prices would stay “higher, longer” due to the Ukraine crisis, ECB President Christine Lagarde said “the drivers of inflation is expected to weaken later this year.
QE: the beginning of the end?
The BoE also outpaced the Fed and the ECB on its £895 billion asset purchase program (quantitative easing, or QE).
The British Bank is no longer buying new bonds, and it said it would stop renewing those that would expire when its key rate reached 0.5%, which could happen as early as Thursday in the event of a rise.
“We assume that the Monetary Policy Committee (MPC) will stick to its plan, but there is a chance that it will get scared,” warn analysts at Capital Economics.
“It would be the very first time the Bank has embarked on a tightening of its balance sheet since the start of the QE program more than a decade ago,” insists Mr Raha of Deutsche Bank.
“Ultimately, for the Monetary Policy Committee (MPC), the strength and number of increases in 2022 will depend on the balance to be found between the fight against inflation and the cost for growth,” he said.
Certain disappointing indicators published in the last two months (growth which slows down in the third quarter according to official data, activity in decline in December due to Omicron according to the PMI index) nevertheless encourage the analysts of Pantheon Macroeconomics to be cautious.
“We think a rate hike is likely, but the market is pricing in a 95% probability, which is too high,” they warn.
The MPC has already taken the market the wrong way in its last two meetings, keeping the rate ultra-low in November when action was expected and raising it in December when investors no longer expected it.
afp/jh