The anticipated move to 0.5 per cent by the Bank of England would also unlock the potential for policymakers to begin unwinding their bond holdings in March, a watershed event after more than a decade of near-constant expansion.
However, that moment seems a remote prospect for the European Central Bank (ECB) and its president, Christine Lagarde. The ECB has already laid out plans to continue asset purchases this year, while indicating that an increase in rates is highly unlikely due to a subdued medium-term outlook for inflation. Most investors see little chance for any shift in that view in the coming week.
Those expectations represent a remarkable divergence between the continent’s major banking institutions. The Bank of England looks like a trailblazer on the road to tightening policy after the pandemic, even as the European Central Bank makes the case for a very slow normalization.
For now, it looks like banks elsewhere are more in the English bank’s camp, with the US Federal Reserve having seemed to endorse liftoff in March, prompting markets’ bets on a rapid series of moves in 2022.