The Bank of England (BoE) will raise borrowing rates earlier than previously thought. A poll found that with a chance to come even sooner, borrowing costs should rise in late 2022.
According to a Sept. 6-9 poll, Bank Rate should rise to 0.25% in the fourth quarter of 2022. That is from its current record low of 0.10%. In an August poll, there shouldn’t be a change to the forecast until 2023.
This would put the BoE ahead of the U.S. Federal Reserve. Another poll found that the U.S. central bank is not forecast to raise interest rates until 2023 but should announce a plan to taper its asset purchases this month.
The BoE and other central banks across the globe cut borrowing costs at the height of the COVID-19 pandemic. It also resumed its quantitative easing program.
However, daily deaths from the pandemic have declined due to extensive vaccination, and most of Britain has now reopened.
On Wednesday, Governor Andrew Bailey said policymakers were evenly split last month. That was between those who felt the minimum conditions for considering an interest rate hike had been met and those who thought the recovery was not strong enough, he said.
He said he was among officials who thought the minimum conditions had been reached. However, they were not yet sufficient to justify a hike as Britain’s economy continued to recover from its nearly 10% pandemic crash in 2020, he said.
Bailey Warns of Inflation Spike
Meanwhile, Bailey warned on Wednesday that British inflation would spike this year. The bank governor said that the “persistent” pandemic while the economic recovery is flattening.
Last month, the U.K.’s central bank had forecast that the annual inflation rate would surge to 4 percent, double its target.
Bailey told a cross-party parliamentary committee of lawmakers that with the persistence of Covid, they had not seen the rebalancing of demand between goods and services. He said it had taken longer than expected.
He also said that the U.K.’s economic recovery is flattening. That is a result of the pandemic and global supply chain bottlenecks. The overall economic impact of Covid in their country has attenuated over time, he said.
At the moment, they see some leveling off of the recovery, Bailey said.
In the second quarter, the economy rebounded 4.8% as the government began easing lockdowns. July data is due for release on Friday.