The Bank of England may announce in its interest rate decision later this week that it is starting to reduce its bond buyouts now that the economic outlook in the UK has greatly improved. This is the expectation of economists prior to the UK interest rate decision.
The main interest rate currently stands at 0.1% and the buy-up program at £ 895 billion, including £ 20 billion for corporate bond buyouts.
Japanese bank Nomura economists expect the British central bank to inform the market that it will reduce QE weekly buyouts, currently at £ 4.4 billion, to £ 2.5 billion a week after the summer.
Economists point out that unlike the Federal Reserve and the European Central Bank, the BoE’s buy-up programme is fixed in terms of size and duration.
The current buy-back programme expires at the end of this year and is set at £ 895 billion. If the British central bank does not start to phase out those buyouts soon, the buyout program may end by december, according to Bank of America economists, as the limit will be reached.
“The BoE should reduce the rate of QE buyouts by a quarter from 4.4 billion to 3.2 billion pounds per week as it announces to taper this week,” the US bank said.
According to Bank of America, waiting until June means that buyouts may have to be reduced so much that BOE policy makers decide to stop the buyout program early.
Want to be the UK’s central bank until the end of 2021 bonds are able to buy them, then you will either need to make now begin to reduce the pace of purchases, or purchases need to increase, say the economists.
Economists do not expect that from ING. “A more optimistic economic outlook makes further monetary easing unlikely.”
ING expects that the BoE will therefore indeed announce that it will cancel its purchases at the time of the interest rate decision. In addition, the bank expects slight upward adjustments in economic estimates.
Nomura does not expect major changes in growth expectations, as they were already very optimistic in February, taking into account recovery to pre-corona levels by the end of the year.
“We also expect the BoE to stick to the expectation that inflation will exceed the 2% target in 2022 and 2023,” says Nomura.
The Bank of England will come forward at 1: 00 on Thursday with its interest rate decision. It also releases new growth and inflation expectations.