A passage near the Bank of England (BOE) in the City of London, UK on Thursday March 18, 2021.

Hollie Adams | Bloomberg | Getty Images

The Bank of England on Thursday kept monetary policy unchanged, but vowed to monitor rising inflation as the UK economy emerges from its Covid-induced slump.

The Monetary Policy Committee voted unanimously to keep the policy rate at an all-time low of 0.1%, and a majority voted to keep asset purchases at the current level of £ 895 billion (1 , $ 24 trillion).

The Bank noted that “the evolution of world GDP growth has been somewhat stronger than expected” since its last report in May. He added that global price pressures have intensified further.

Looking ahead, he said the committee’s central expectation is that the economy will experience a temporary period of strong GDP growth and above target inflation, “after which growth and inflation will fall back.” .

However, he added: “There are two-way risks around this central trajectory, and it is possible that the upward pressure on prices in the near term will turn out to be a little greater than expected. Taking together the evidence from financial market measurements and surveys of households, businesses and professional forecasters, the Committee believes that UK inflation expectations remain well anchored. “

The outgoing Chief Economist of the Bank of England, Andy Haldane, was the dissenting voice during his last meeting as a member of the MPC. Haldane previously warned the “inflation tiger” was coming and urged the Bank to cut its £ 50bn quantitative easing at the last meeting in May.

The British pound slipped sharply against the dollar after the news, falling to 1.3908 from 1.3977 earlier in the session. Economists noted that there had been no major Hawkish change despite the mention of inflation risks.

“There was no real sign that it is planning to tighten policy sooner, Fed-style. We believe policy will be tightened much later than the mid-2022 date the markets have assumed.” Paul Dales, UK chief economist at Capital Economics, said in a research note.

Inflation surge

The MPC has not changed its political parameters since November 5, 2020, when it raised its bond buying target from £ 745bn to its current £ 895bn, while the rate of 0.1% discount has remained unchanged since March 2020.

UK consumer price inflation stood at 2.1% in May, beating expectations and surpassing the bank’s 2% target for the first time in nearly two years, while core inflation fell from 1.3% in April to 2% in May.

While the market expected no policy changes on Thursday, the Bank’s take on inflationary pressures and clues about its future tightening schedule were the center of attention. These CPI figures represented a steeper slope than expected by the Bank, according to the minutes of the last meeting.

The U.S. Federal Reserve surprised the market last week with a hawkish turn, upping its inflation expectations and pushing forward its rate hike schedule to project two hikes in 2023.