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May 20, 2023
On Thursday, the Deputy Governor of the Bank of England, Dave Ramsden, said that the rate the central bank reduces its holdings of government bonds is likely to increase. This will then result in the release of the quantitative easing program.
For now, the Bank of England will reduce its holdings of government bonds. The reduction in bond holdings is up to 80 billion pounds per year. Meanwhile, the BoE's monetary policy committee will review the pace of easing in Q3.
The MP from the Parliamentary Finance Committee said: "There is potential for us to go up a bit. I don't see any sign of slowing down, given the experience of the first year of qualitative tightening."
The Deputy Governor of the BoE was also asked for his opinion on reducing bond holdings at a rate of 80 billion pounds per year. He said there was the potential to disrupt market liquidity, and the additional risks varied yearly.
The governor of the Bank of England said there would be signs of an easing labor market tightening. However, the BoE warned that interest rates could still be raised further to curb inflation.
"There has been some recovery in market participation in the labor sector. Especially in the youth sector, the number of vacancies has fallen from very high. The ratio of vacancies to unemployed has fallen as a result," Bailey said.
The figures have raised expectations that interest rates will rise. This was a record 12th straight increase to 4.5% earlier this year. The bank believes that a tight labor market will help raise wages and, at the same time, be a driver of inflation.
The Governor of the Bank added: "I can assure you that the Monetary Policy Committee will adjust bank interest rates as necessary to return inflation to a sustainable target. This is good for the medium term and can be an unshakable 2% target.
However, one of the main concerns is British inflation driven by the effects of the second round of monetary policy. Inflation persistence indicators coupled with a tightening labor market and wage growth have caused bank interest rates to only moderate.
This situation is riskier and causes a spiral in wage prices. This theory relates to workers bidding for wage increases when inflation increases. And this fuels higher demand and drives steep market moves in later sectors of the economy.
Without this effect, UK inflation would likely fall to 2.5% in the next 9 to 12 months. But given the moves, this could lead to a sharp decline in wage growth, and the BoE stated that this could be the biggest ever.
Andrew Bailey also provided additional comments regarding inflation. The risk of inflation starting to get higher because of this spiraling effect has made the market begin to worry. But the BoE's commitment to 2% inflation is unwavering.
"The BoE has to take action to ensure that inflation comes down when the external shock subsides. Pricing that can contain inflation longer will be taken to offset this impact," Bailey told the media today.
The outlook for the new UK economy was expected to be softer, but the BoE is starting to be more upbeat than the IMF. This planned fiscal policy already leads to more robust global economic growth, although the UK is still exposed to the recent global shocks.
However, according to many economists, this is necessary because the BoE must be above target against inflation. If the BoE does not tighten, the trading session may not have the proper impact.
The Bank of England will accelerate the pace of quantitative tightening following the many economic turmoils that have occurred. The Bank of England is still working on inflation to reach its target.
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