What to expect from next week's Bank of England meeting?
Next week's Bank of England meeting is unlikely to result in any major change in monetary policy, but it will be closely watched for any hawkish shift in tone after America's central bank, the Federal Reserve, signalled plans to bring forward interest rate hikes amid rising inflation. It could also turn out to be an interesting meeting because it is the last one with Andy Haldane, the Bank's chief economist who, apart from having a reputation for being a 'feather ruffler', has been warning of the growing dangers from inflation for a while. Haldane, who is leaving the role this month to become the chief executive of the Royal Society for Arts after 32 years at the Old Lady, was the only Monetary Policy Committee member to vote to rein in the Bank's bond-buying programme by 50billion at the last meeting. BoE's chief economist Andy Haldane has been warning of the growing dangers from inflation for a while  And he recently reiterated that the Bank should at some point begin to 'start turning off the tap' of monetary support provided during the pandemic, in order to stop inflation from spiralling out of control as the economy goes 'gangbusters'. 'He could well go out with a bang given his recently articulated concerns,' said Michael Hewson, chief market analyst at CMC Markets UK. 'His comments that the recovery is going gangbusters has seen markets start to price in the prospect of a rate hike in 2023, a not unreasonable position given that rates are still well below the levels they were at the beginning of 2020.' Overall, Haldane has not gone against the MPC consensus, but the other one time he went against the majority, he was only ahead of the other policymakers, as AJ Bell financial analyst Laith Khalaf notes. 'Haldane has been a consensual member of the MPC in his seven year stint on the committee, going against the majority decision on interest rates only once, in June 2018, when he voted for a 0.25 per cent hike,' he said. 'Just a month later, the MPC voted unanimously to raise rates, so this was hardly a controversial stand.' But he has courted some controversy, like when in 2016, he said he couldn't make the 'remotest sense' of pensions or when, more recently, he warned that pessimistic views about the coronavirus crisis risk holding back the economy, declaring: 'Now is not the time for the economics of Chicken Licken.' The Bank of England is not expected to make any changes to rates or QE, but markets will be watching for any change in rhetoric, particularly following the latest hawkish shift in interest rate expectations from the US central bank  But he has also been right about a number of things, Khalaf notes, and he could be right about inflation too. 'He was absolutely right to point out [in 2016] how the lack of supply in the housing market would lead to a property price boom, a phenomenon which continues apace today, aided by low interest rates and government policies designed to incentivise and facilitate house purchases,' Khalaf said. 'More recently, Andy Haldane has become concerned about inflation... Inflation is indeed the big quandary facing central banks today, and it could well be hiding in plain sight, as prices rise under the cloak of a reopening economy. 'The Bank will likely continue to view inflation as transitory until we've fully lapped the first wave, and the furlough scheme has been unwound. This means if inflation does become a problem, the Bank will probably be late in taking away the punchbowl.' UK inflation rose to 2.1 per cent last month, above the Bank's target of 2 per cent, and is expected to gather pace in the coming months as the economy continues to recover. The big question is weather higher inflation is only temporary or here to stay. Inflation has also been rising in the US, where the Federal Reserve this week signalled that rates could increase twice by the end of 2023, compared to previous expectations they would stay the same until 2024. Rising prices: The big question is weather higher inflation is only temporary or here to stay  'Inflation is rising and unemployment is falling, but the Bank of England isn't going to do anything about raising interest rates until it's sure these aren't just transitory factors emanating from an economy that's gone from red to green,' Khalaf said. 'Markets will therefore be watching for any change in rhetoric rather than concrete action, particularly following the latest hawkish shift in interest rate expectations from the US central bank.' Concerns about inflation fears have been causing stock markets around the world to dip as traders traders fear that rising prices will tempt central banks to hike interest rates or start to rein in their monetary stimulus, both of which have contributed to strong runs for equities in recent years. The Bank also has to grapple with a raft of economic data. Haldane has been bullish about the UK economic recovery, saying it would bounce back like a 'coiled spring' after people rushed back to pubs, shops, hairdressers and gyms - and recent data seem to back him up. The UK economy grew by 2.3 per cent in April in the highest monthly rise since last July, according to official figures, while the services sector grew at the fastest pace in 24 months in May, according to the most recent PMI survey. June's PMI surveys will be published on Wednesday - a day before the Bank's meeting - so will shed more light on the stage of the economic recovery. However, there have also been signs of a slowdown in the recovery, with retail sales dropping in May and other data pointing to a slowdown in spending. Simon Harvey, senior FX market analyst at Monex Europe, said: 'A drop in retail sales won't concern BoE policymakers, but consumers are beginning to fatigue as highlighted by the latest CHAPS aggregate credit and debit card spending data  'Yesterday's ONS release of real-time data showed some red flags for the Bank of England to digest; the number of seated diners has started to moderate, retail footfall is also falling, while CHAPS data shows aggregate spending is also struggling to remain around pre-pandemic averages. 'For now, as the UK consumer continues to settle into life post-lockdown, the underlying trend of consumption patterns is hard to gauge, but these emerging weak spots may be an area of concern for BoE policymakers at next week's meeting, if not at subsequent monetary policy meetings should it continue.'