BoE set to hike UK growth forecast on Covid recovery

It comes as the BoE is widely expected to leave its key interest rate at a record-low 0.1% and maintain its stimulus programme pumping vast sums around the economy.

Pedestrians walk past the Bank of England (L) and the Royal Exchange in the City of London on 31 July 2017. Picture: AFP.

LONDON - The Bank of England is set to hike its economic growth forecasts on Thursday as the UK gradually exits lockdown restrictions thanks to the country's rollout of Covid-19 vaccines.

It comes as the BoE is widely expected to leave its key interest rate at a record-low 0.1% and maintain its stimulus programme pumping vast sums around the economy.

"It looks highly likely that the Bank of England will significantly revise up its GDP growth forecast for the UK economy in 2021 ... and improve its unemployment projections," noted EY economist Howard Archer.

The BoE currently forecasts the UK economy to grow by 5.0% this year and by 7.25% in 2022.

It has also predicted unemployment to average 6.5% this year.

At the same time, investors are concerned that the reopening of economies and huge government stimulus programmes worldwide will hike inflation, risking higher interest rates down the line.

But despite Britain's annual inflation rate accelerating to 0.7% in March partly owing to rebounding oil prices, it remains far below the BoE's 2.0% target.

POUND IN FOCUS

"Although Consumer Prices Index and wage inflation have remained relatively soft, input costs are nonetheless rising as the increases in prices of raw materials are exacerbated by a strengthening pound," said Fawad Razaqzada, analyst at ThinkMarkets.

While Thursday's announcements by the central bank could impact sterling, key local elections in Britain the same day -- and notably in Scotland -- are likely to play their part.

"Scotland's elections... combined with a Bank of England meeting create a good deal of event risk for sterling," said Neil Wilson, chief market analyst at Markets.com.

Polls suggest the pro-independence Scottish National Party, led by First Minister Nicola Sturgeon, could fall just short of an overall majority of 65 seats in the devolved parliament in Edinburgh.

The votes across Britain are the first since the coronavirus outbreak and after Brexit took full effect.

And they are the first electoral tests for Prime Minister Boris Johnson against Keir Starmer since the latter's election as main opposition Labour party leader last year.

Johnson's Conservative government has spent £352 billion ($490 billion, 408 billion euros) in emergency measures since the outbreak of Covid-19, particularly for a furlough scheme that has paid the bulk of private-sector wages for millions of workers across the UK.

The state's emergency pandemic support measures have sent UK annual borrowing rocketing to the highest level since World War II.

As the pandemic erupted in March 2020, the BoE slashed its key interest rate to a record-low 0.1%, where it has remained.

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