BOE sees inflation surging but keeps stimulus

[LONDON] The Bank of England (BOE) on Thursday predicted the UK annual inflation rate to continue surging this year as pandemic-hit economies reopen, but kept its record-low interest rate and emergency stimulus intact.

The BOE forecast inflation as reaching 4 per cent from 2.5 per cent currently, adding to fears that a spike in prices worldwide will force central banks to hike interest rates sooner than expected, in turn hindering economic recovery.

Following a regular meeting, the BOE left its interest rate at an all-time UK low of 0.1 per cent.

It said that "inflation is projected to rise temporarily in the near term, to 4 per cent ... owing largely to developments in energy and other goods prices".

The BOE then expects the inflation rate to fall close to its 2 per cent target.

Britain's Consumer Prices Index hit 2.5 per cent in June as its government led by Prime Minister Boris Johnson lifted virus curbs.

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The UK has lifted most lockdown restrictions, enabling its economy to press on with recovery despite worries over the fast-spreading Delta variant of the coronavirus.

Steered by governor Andrew Bailey, the BOE at its latest meeting decided also against tapering the vast amount of cash stimulus pumping around the UK economy.

As the pandemic erupted in March 2020, the BOE slashed its key interest rate to the current record-low level.

It also began pumping massive sums of new cash into the economy.

The bank has created £450 billion (S$845.7 billion) under its quantitative easing (QE) programme since March last year, when Covid-19 prompted Britain's first coronavirus lockdown.

Prior to this, it had pumped hundreds of billions of pounds worth of QE into the UK economy over a decade following the 2008-09 global financial crisis and Brexit.

The central bank's total emergency stimulus package stands at £895 billion.

Analysts said the BOE will be mindful of an expected jump in British unemployment after the UK government next month ends its furlough scheme that has kept millions of Britons in private-sector jobs during the pandemic.

AFP