The Bank of England (BoE) will be making its latest monetary policy decision on Thursday, although economists are not expecting any surprises around policy settings.
Economists predict the central bank will vote unanimously to leave the UK's interest rate at 0.1% in its third meeting of 2021.
The quarterly monetary policy report should show better growth and higher inflation ahead as the vaccine rollout programme continues in Britain, and allows the economy to reopen as planned.
The success of the vaccine in the UK has led to output exceeding expectations. The result should be a substantial upgrade to the committee's growth forecasts and a substantial downgrade to its unemployment forecasts.
Although no changes to monetary policy are expected, a slowing of the pace of asset purchases is expected by some economists.
“The thorny issue for policymakers is whether to use this meeting to announce how and when it will taper bond purchases,” Neil Wilson of Markets.com said.
“The yield on 10-year gilts is back to 0.84%, close to the March peak at 0.87% and could top this should the BoE signal it is ready to exit emergency mode.”
It is possible that policymakers may prefer to wait until its June meeting, which should give the committee “confidence around recovery, alongside a string of solid data from growth to inflation before slowing the pace of asset purchase,” Deutsche Bank said.
However, it is currently on course to hit its £875bn ($1.2tn) target over three months early in September, instead of the end of the year.
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Wilson added: “Ultimately, the question about tightening is really one of timing, but the BoE cannot be blind to the economic data and this meeting could be the time to fire the starting pistol.”
Meanwhile, Brian Hillard at Societe Generale said: “It makes more sense to do so at this one in the context of the updated forecasts.
As well as the key tapering decision, the BoE may revise its guidance on when it will wind down quantitative easing (QE).
The Bank has a lot to factor into its already above-consensus forecasts, including a first quarter upgrade, the March budget and US fiscal policy.
Last month, the IMF upgraded the UK's GDP growth for 2021 and 2022, but said activity in the country, along with the euro area, is expected to remain below end-of-2019 levels for the next couple of years.
May’s monetary policy report will inevitably have a 2021 growth upgrade, which should see 2021 GDP projected to rise by closer to 7%, up from 5% in February. This would see GDP crossing its pre-virus path later this year.
Analysts at Barclays said: “But, how much more can it upgrade without effectively preparing markets for early hikes? We think the MPC will continue to tread carefully, balancing an optimistic narrative with historically high uncertainties.
Inflation guidance is expected to be unchanged from its previous note: “The committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”
The Bank of England will publish its latest monetary policy decisions at 12pm on Thursday.
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