Bank of England Expected to Take One Step Towards Tightening Monetary Policy

The Bank of England may take a step toward tightening monetary policy, reducing its 900 billion pounds (1.2 trillion US dollars) debt purchase program and opening up the possibility of lowering borrowing costs below zero.

Although the two decisions are in opposite directions, the facts may prove that the two are inseparable. They have a place in the discussion about which move the Bank of England will take first when the time comes to tighten monetary policy.

President Andrew Bailey and his colleagues have hinted that they hope to sell some government bonds purchased during the QE period, the interest rate will be higher than the current level. The use of negative interest rates as a potential policy tool can allow them to reduce the timing of their balance sheets in advance and pave the way for greater action.

“It makes sense for them to make the market aware of their new guidelines earlier,” said John Wraith, head of UBS UK and European interest rate strategy.

The Bank of England will announce its latest policy decision on Thursday. Officials are expected to maintain the 0.1% interest rate unchanged. Some people may call for an early termination of the bond purchase plan.