The Bank of England could this week raise its main interest rate for the first time in more than three years to rein in surging inflation as economies reopen from pandemic lockdowns, analysts say.

Economists are predicting that the BoE led by governor Andrew Bailey could hike borrowing costs from a record low of 0.1 percent to 0.25 percent at a regular policy meeting on Thursday.

Other central banks across the globe have recently tightened policy to cool soaring prices and still more are considering following suit.

Monetary policymakers must also decide whether to taper huge emergency cash stimulus support that has kept economies afloat during the pandemic.

The US Federal Reserve is expected on Wednesday to announce plans to begin tapering its stimulus as the world’s biggest economy recovers.

The European Central Bank and Bank of Japan are holding fire for now on rates and stimulus, but central banks in countries such as Brazil, Singapore, South Korea and New Zealand have all increased borrowing costs recently.

The Bank of Canada has ended its vast bond-buying stimulus programme, and has flagged an interest rate hike earlier in 2022 than envisaged.

In the UK, the Bank of England may raise its interest rate on Thursday as it “appears more worried about the upside risks to inflation from rising underlying wage growth and higher inflation expectations than… a month ago”, said Paul Dales, economist at Capital Economics.

The BoE’s new chief economist Huw Pill told the Financial Times in late October that the UK annual inflation rate risks shooting above 5.0 percent in the coming months from 3.1 percent currently.

For its part, the British government is forecasting an annual average rate of 4.0 percent over the next year after energy costs soared and reopening economies suffer from supply shortages.

Economists are not unanimous, however, in thinking the BoE will raise its interest rate as early as Thursday, even as the financial markets price in such a move.

Faltering recovery?

“We can’t rule out a rate hike at this meeting — indeed, markets see it as a near certainty,” said Samuel Tombs, economist at Pantheon Macroeconomics. Britain’s growth “recovery is faltering”, he said.

While the UK economy was on course to rebound 6.5 percent this year, it is forecast to cool slightly in 2022, the government said last week.

As the pandemic erupted in March 2020, the BoE slashed its key interest rate from 0.75 percent and also began pumping massive sums of new cash into the economy.

It has created £450 billion under its quantitative easing (QE) programme since March last year, when Britain imposed its first coronavirus lockdown.

Prior to that, it had pumped hundreds of billions of pounds worth of QE into the UK economy over a decade following the 2008-09 global financial crisis and Brexit.

The central bank’s total emergency stimulus package stands at £895 billion.

The BoE’s last rate rise was in August 2018 when it hiked borrowing costs to 0.75 percent from 0.5 percent.

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