The Bank of England is expected to hold interest rates steady and make no changes to its asset purchasing program when it gathers Thursday for its September Monetary Policy Committee meeting.
The central bank is set to keep interest rates at a record low of 0.25 percent and maintain its quantitative easing (QE) program at a rate of £435 billion ($573 billion), despite inflation remaining at stubbornly high levels.
The fall in sterling following the U.K.’s vote to leave the European Union has pushed up the cost of imports, making goods more expensive for British consumers. This has resulted in higher inflation, which currently stands at 2.6 percent, well above the Bank of England’s target of 2 percent.
Ordinarily, this higher inflation would prompt the central bank to hike interest rates. However, the anticipated slowdown in the U.K. economy following Brexit leaves the bank reticent to make such moves, predicting that inflation will soon fall. Already inflation has fallen from 2.9 percent in June and new forecasts are expected out Tuesday.
Governor Mark Carney said during the Bank of England’s August meeting that two interest rate hikes could be expected over the coming three years – one more than previously expected – though he cautioned that the first is unlikely to occur until the third quarter of 2018.
The central bank cut interest rates from 0.5 percent to 0.25 percent and introduced a package of stimulus measures in August 2016, as the impact of the U.K.’s June 23 Brexit vote began to materialise.
At last month’s meeting, the Monetary Policy Committee voted to hold interests rates steady by a majority of six votes to two, and decided unanimously to maintain its stock of U.K. government bond purchases at £435.
At the same time, the Bank of England downgraded the U.K.’s growth forecasts for this year and next. It now expects the U.K. economy to grow at a rate of 1.7 percent in 2017, down from 1.9 percent previously, and 1.6 percent in 2018, down from 1.7 percent.
This European Central Bank (ECB) announced last week that it too would hold interest rates steady and gave no indication of plans to reign in its monetary stimulus program.
Unlike the U.K., the ECB is battling with low inflation and a fast appreciating euro.
These conditions have made it difficult for the bank to ease off on its asset purchasing program, despite signs of a strengthening economy. However, President Mario Draghi said Thursday that the bank would discuss such measures at its next policy meeting in October.
Source: CNBC
