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The Bank of England has a big task on Thursday, balancing the need to keep the economy recovering while limiting inflation and speculation about rising interest rates.

The build up to the Monetary Policy Committee announcement due at 12 p.m. London time has been dominated by a jump in consumer-price growth above the BOE’s 2% target for the first time in almost two years.

While a growing minority of economists has brought forward its expectations for when the BOE will tighten monetary policy, millions of workers remain unemployed or on furlough. That’s left both the Treasury and central bank wanting to maintain stimulus until the recovery is more entrenched. Those forces point to a shift in tone but not policy.

“There will be a little less action, and a little more conversation,” said George Buckley, chief U.K. economist at Nomura International Plc in London. “It’d be difficult to go from a situation where, just over a month ago, you sanctioned continuing on the QE path, to go to: ‘We need to get rid of QE or even tighten by raising interest rates.’ That’s a very big shift.”

Here are the issues guiding the BOE’s decision:

Economic Context

The Federal Reserve reignited concern about inflation when it signaled U.S. monetary support could be curtailed faster than previously anticipated.

Given the current strength of the U.K. rebound — manufacturing and housing roaring ahead, payrolls rising, consumers upbeat about the outlook — the BOE will have to acknowledge recent positive signs. But against that, there are risks from the delta variant of the coronavirus and uncertainty about whether the current growth carries over into the second half of the year.

Outlook and Guidance

Investors and economists will scour the MPC statement for any signs on a preferred course of action. The majority, however, expects the meeting to put the BOE in a holding pattern until at least August, when officials will have more information on the reopening of the economy, delayed until mid-July, and new forecasts.

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The BOE’s benchmark rate is at a record-low 0.1% and the nine-member MPC is forecast to vote unanimously this week to keep it there. On bond-buying, the vote will be 8-1 as Chief Economist Andy Haldane once again pushes to pare back stimulus.

Forecasts for Action

Some banks have shifted their views recently and the idea of a 2022 rate increase has become less of an outlier view. Credit Suisse Group AG sees the BOE raising rates next year, earlier than previously forecast, as does Bank of America.

Money markets are betting on a 15 basis-point increase by June next year. That’s almost double compared to before the last monetary policy meeting in May.

What Bloomberg’s Economists Say…

“Our base case is the first rate hike comes in mid-2023. But there’s a growing risk that the rise in unemployment is less severe at the end of this year, which would boost the case for a move in the second half of 2022.”


Changing Faces

This week’s MPC meeting will be the last for Haldane. He’s been bullish on the economy, describing it as “going gangbusters” and saying that inflation risks have created a “dangerous moment” for policy.

In the minutes of the discussion, the focus will be on any hint of a change in mood among the other eight committee members. Gertjan Vlieghe, once among the most dovish, said last month that rate hikes could happen early next year in an “upside” scenario for the economy. Vlieghe leaves later in the summer and will be replaced by Catherine Mann, the former chief economist at Citigroup Inc. and the OECD.

Reasons to Wait

But economists say lingering uncertainties will push officials to try to stay cautious. Unemployment later this year is a key risk and it’s not clear how well the jobs market will hold up once government support ends.

The bank itself has been saying for months it has no intention of shifting policy before there’s a sustained increase in inflation. The BOE is due to update its inflation and growth forecasts in August and also around that time is due to recieve a report from staff on how to go about unwinding its stimulus measures when the time comes. Those events give the MPC good reason to hold off on any action at the meeting on Thursday.

“The focus on the recovery strength and the labor market should still be pushing the MPC in a more hawkish direction,” said Allan Monks, an economist at JP Morgan Chase & Co. But the ending of furlough program “places a constraint on how hawkish the BOE is prepared to be ahead of this next key phase in the recovery.”

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