Market players are still puzzled about the rate decisions that policymakers will take. Differences of opinion among policymakers have led investors and analysts to express concern over the impact of the post -interest rate hike.
Inflation in the UK is seen to be rising to 5%, double the BOE's target of 2%. Although the economic recovery has slowed slightly but BoE Governor Andrew Bailey has stated that there is a need to act to curb inflation expectations.
Two of the other nine members of the Monetary Policy Committee have voiced similar concerns ahead of the policy announcement on Thursday. Some MPC members chose to remain silent, adding to tensions about the follow-up effect if the BoE would be the first of the world’s largest central banks to raise rates after the Covid-19 crisis.
Last Wednesday, the Fed appeared poised to approve a plan to reduce its bond purchases and an expected rate hike in mid -2022.
Analysts predict the MPC will vote 6-3 to raise the Bank Rate to 0.25% from its record low of 0.1%, after Bailey’s comments prompted a surge in betting in financial markets with the rise.
This is seen as not very pleasing to the market because according to them it is not something that is efficient at this point. Yet other analysts like Andrew Goodwin predict the opposite that interest rates will be maintained.
Goodwin said the BoE will likely hold interest rates a little longer while it waits to assess the impact of the government scheme on the job market. “With rising inflation mainly due to global factors and households facing huge cost of living challenges over the winter, we think the rate tightening by the MPC is a mistake,” Goodwin said.
UK market players are now focusing on the report of the BOE policy meeting which will be published on Thursday.
