Despite an inflation that could go up to 5% in the spring of 2022, the Bank of England decided to maintain its 0.1% key interest rate.
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Did the Bank of England had the hand that trembles? After a series of speeches suggesting that a rise in rates was imminent, his monetary policy committee finally decided on Thursday, November 4, not to act. The key rate remains at 0.1%, taking the financial markets, which expected the British monetary institution to be the first Western Bank to decide on an increase. The measurement is however rewarded a few months. “We believe that interest rates will have to increase modestly to reduce inflation to 2%,” warns the institution.
Two of the nine members of the monetary committee were in favor of an action right now. The others also hesitate, says Andrew Bailey, the governor of the Bank of England: “The decision was very tight.” The “old lady of Threadneedle Street”, his nickname shot from the street where she is installed, faces the even embarrassment as the other central banks. On the one hand, the inflation thrust is obvious, largely above its mandate of 2%. In the United Kingdom, it reached 3.1% in September, and should turn around 4.5% by the end of the year, then climb to a 5% peak in the spring of 2022, according to the bank of England.
The flight of gas and oil prices, but also that of most durable goods, makes this trajectory inevitable. On the other side, the economic recovery is more fragile than it seems. Certainly, growth will graze 7% this year in the United Kingdom, the strongest of the G7 countries, but it is a mechanical catch-up effect after the violent drop of 2020. For the moment, the economy Is not quite returned to its level before the Pandemic of Covid-19. “The gross domestic product should regain its fourth quarter 2019 level in the first quarter of 2022”, Note Mr. Bailey.
Flying would be transient
Added to this is a complete blur that reigns in the labor market. The United Kingdom faces significant labor shortages in some sectors. The panic around empty gas stations, caused by the lack of road drivers to transport the fuel, gives the impression of an overheating economy. But other signals make the Bank of England hesitate. In particular, at the end of September, the British government ended partial unemployment, while 1 million employees still benefited from it.
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