LONDON: The Bank of England is expected to raise its main interest rate on Thursday for a second policy meeting in a row to combat decades-high inflation that risks stalling economic recovery.
Analysts' consensus is for BoE policymakers, led by governor Andrew Bailey, to hike borrowing costs by a quarter-point to 0.5 percent at their regular meeting and revise both their inflation and growth forecasts.
The central bank already increased borrowing costs from a record-low 0.1 percent to 0.25 percent in December -- the first monetary policy tightening in more than three years.
Another move this week "would mark the first time that the BoE has increased its policy rate in two successive meetings since June 2004", noted Karl Thompson at the Centre for Economics and Business Research.
Nevertheless, the bank could surprise markets and sit tight this time round, as it did in November when a rate rise had been widely expected.
The hike in December had similarly caught the markets off guard.
The European Central Bank, which is also holding its regular policy meeting on Thursday, is expected to leave its key interest rates unchanged.
ECB chief Christine Lagarde has downplayed inflation concerns, arguing that the forces pushing up prices across the eurozone are expected to ease over 2022.
Official data on Wednesday showed that eurozone inflation soared to a record high of 5.1 percent in January.
On the other side of the Atlantic, the US Federal Reserve is expected to hike borrowing costs as many as seven times before 2023, with an initial 50-basis-point move pencilled in for March.
Britain's annual inflation rate rose to a near 30-year high of 5.4 percent in December, stoking fears about a cost-of-living squeeze as wages fail to keep pace.
And UK inflation is forecast to move even higher in the coming months with domestic energy prices set to rise further.
The BoE's chief task is to keep inflation close to 2.0 percent.
At the same time, Britain's economy has surpassed its pre-pandemic level after recording strong growth in November.
Since then, however, retail sales suffered a record drop in December as consumers shunned bricks-and-mortar shops owing to concerns over the Omicron coronavirus variant.
While higher interest rates increase costs for borrowers, including homeowners and businesses, they improve returns on savings.
"Whilst the withdrawal of pandemic support schemes has reduced government spending requirements in recent months, this is being partly outweighed by a significant increase in the cost of interest payments on debt," said economist Thompson.
As the pandemic erupted in early 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 (540 billion euros, $610 billion) under its quantitative easing (QE) programme since March 2020, 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, an amount expected to remain on hold Thursday.