Bank of England holds rates and downgrades growth projections

General view of the Royal Exchange, the Bank of England and the City of London in the image.

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LONDON – The Bank of England on Thursday kept monetary policy unchanged and lowered its forecast for economic growth for the third quarter of this year.

BOE policymakers voted unanimously to leave its main interest rate unchanged at a record 0.1% and chose to stick to its asset purchase target of $ 875 billion. pounds sterling ($ 1.2 trillion).

But the case for political tightening appeared to be gaining momentum on Thursday, as Deputy Governor Dave Ramsden joined with Michael Saunders in voting for an early end to the bond buying program. BOE State.

The central bank lowered expectations for UK GDP growth in the third quarter to 2.1%, from 2.9% at the time of the August report. This downgrading would reflect, in part, “the emergence of certain supply constraints on production”.

The updated forecast would leave third-quarter GDP around 2.5% below the pre-Covid peak in the UK.

It comes shortly after UK economic growth unexpectedly slowed in July and consumer price inflation saw its biggest month-over-month increase since record highs began. in January 1997.

The inflation reading has prompted some BOE watchers to advance rate hike expectations early next year, while Bank of America economists believe the central bank may be pressured into a rate hike. from February if inflationary pressure persists.

The British pound traded up 0.5% to $ 1.3694 shortly after the central bank’s rate decision, reducing early-week losses.

The economic recovery “stabilizes”

The UK economy grew just 0.1% in July from the previous month, according to data from the Office of National Statistics. This was the sixth consecutive month of growth as part of the removal of Covid-19 restrictions, but the increase was significantly smaller than expected and much slower than the previous month, which saw an increase of 1 %.

The ONS said the UK economy remained 2.1% below its pre-Covid pandemic level.

The numbers prompted BOE Governor Andrew Bailey to suggest Britain sees “some stabilization” in the economic recovery after the coronavirus pandemic.

Speaking to lawmakers earlier this month, Bailey reaffirmed his view that a recent surge in inflation will not prove to be persistent. The BOE warned in August that inflation could reach 4% this year, double its target level, before falling back to almost 2%.

The UK consumer price index jumped 3.2% in the 12 months to August, according to data compiled by the ONS last week. A Reuters poll had predicted a reading of 2.9% for August.

The index jumped 2.0% in July on an annual basis.

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