BOE takes step towards raising rates as inflation seen spiking

Bloomberg

The Bank of England signalled that its concerns over inflation are strong enough to warrant the withdrawal of some support to the UK economy over the next three years.
Policy makers led by Governor Andrew Bailey said they now expect annual price growth to peak higher than expected around 4%.
While most of the increase may prove temporary, meeting the central bank’s 2% target
in the medium term will require “some modest tightening,”
they said.
The shift from a previous pledge to keep policy loose puts the BOE firmly among global central banks that are worried more about inflationary pressures driven by consumer demand as well as supply bottlenecks.
But UK policy makers were careful to signal they’re in no rush to act soon, leaving investors convinced that the first increase in interest rates will likely come in the second half
of next year.
“While warning about short term inflation pressures, the Bank of England continues
to be relatively relaxed,” Luke Bartholomew, senior economist at Aberdeen Standard Investments, wrote in a report.
He added that warning about future tightening is “consistent with a number of other global central banks that are preparing markets for the very gradual tapering of monetary support.”
The initial market reaction
reflected that balance. UK 10-year bond yields were two basis points higher at 0.53%, having earlier reached 0.55%. The pound climbed 0.3% to $1.3938.
“The Bank of England edged a little closer towards the stimulus exit door at its August
meeting. Assuming the ending of
the furlough scheme doesn’t prompt an unexpectedly large rise in unemployment, the
central bank is likely to start tightening in 2022.”
BOE officials also gave more clues about their approach to removing stimulus when the time comes, saying they will start to unwind their 875 billion-pound ($1.2 trillion) quantitative easing program when the interest rate reaches 0.5%.
That’s facilitated by the central bank’s decision on to embrace the possibility of sub-zero policy.
“We plan to start with a ceasing to reinvest as the gilts that we hold mature,” Bailey said in a Bloomberg Television interview.