The Bank of England is about to face a difficult decision whether to raise interest rates is in doubt

The Bank of England’s interest rate decision this week will be the most unpredictable in years. This makes investors and analysts nervously wondering how likely it is for the UK to carry out the first increase since the epidemic hit the global economy. interest.

Britain’s inflation rate is set to rise to 5%, which will be more than twice the Bank of England’s 2% target, despite the slowdown in the economic recovery from last year’s downturn, and the Bank of England President Bailey has spoken of the need to take action. Control inflation expectations.

Two of the other nine central bank monetary policy committee (MPC) members expressed similar concerns. The Bank of England will announce its interest rate decision at 1200GMT on Thursday.

But two others said that they are almost unable to solve the root cause of the accelerated price increase: the bottleneck caused by the reopening of the global economy, and this situation may quickly subside.

The remaining four MPC members have remained silent, adding to the suspense whether the Bank of England will become the first major central bank to raise interest rates after the new crown crisis.

On Wednesday, the US Federal Reserve (Federal Reserve/FED) is expected to approve the reduction of its bond purchase plan, which is a prelude to interest rate hikes. Investors expect the Fed to start raising interest rates in the middle of 2022.

“Will they? Wouldn’t they?” Bank of America Securities analysts said in a report to clients on the November meeting in the UK.

After Bailey’s remarks prompted a surge in bets on interest rate hikes in financial markets, analysts predicted that MPC will raise the benchmark interest rate from a historical low of 0.1% to 0.25% with a 6-3 vote.

“We think that disappointing (the market) now may be Bailey’s least willing choice,” they said, but they also hedged their bets, saying that raising interest rates is not a foregone conclusion.

The large-scale spending budget announced by the British Chancellor of the Exchequer Rishi Sunak last week may also prompt the MPC to raise interest rates.

Andrew Goodwin of Oxford Economics predicts that MPC will keep interest rates unchanged with a 6-3 vote, which is also the common view of analysts in the Reuters survey.

Goodwin said the Bank of England may keep interest rates unchanged for a while waiting to assess the impact of the end of the government’s vacation plan on the job market.

“Since the increase in inflation rate is mainly due to global factors, and families face considerable cost of living challenges in winter, we believe that the MPC will be a mistake to raise interest rates,” Goodwin said.

The interest rate hike now will mark a sudden change in the central bank’s stance, as all nine members of the MPC voted to keep interest rates unchanged at the September meeting.

Since gaining full independence in 1997, only six times have been after MPC members unanimously voted to maintain the policy unchanged, and then interest rates were raised immediately.

Although economic analysts have different views on what the Bank of England will announce on Thursday, the broader consensus is that the Bank of England is unlikely to raise interest rates significantly in the next year as investors expected.

“We don’t have much confidence in the prediction of when the MPC will raise interest rates in the next four months,” said Paul Dales of Capital Economics.

“But we are more confident that MPC will not raise interest rates to 1.25% before the end of 2022, as the market has digested.” 

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