The Bank of England is set to keep pumping money into the economy despite fears of rising inflation.
With pandemic restrictions now lifted, the UK is recovering rapidly and is on course to expand by 7 per cent this year – the strongest rate of growth since the Second World War.
But inflation is also on the rise and, having hit 2.5 per cent in June, it looks set to head towards 3.5 per cent or even 4 per cent in the coming months – well above the Bank's 2 per cent target.
Decision time: Bank Governor Andrew Bailey has argued that recent price rises are 'transitory'
That has created a headache for Bank and Treasury officials, who fear higher inflation will hike the cost of servicing Britain's £2.2trillion debt pile.
And the inflationary spike has put the Bank's huge quantitative easing programme in the spotlight, with its monetary policy committee (MPC) increasingly at odds over what to do next. The debate is a tricky one because pulling support too quickly could hurt the UK's economic recovery from the pandemic. The Bank's QE puts money into the economy through bond purchases, injecting cash into debt markets and helping struggling companies to stay afloat.
It sets the stage for another tense meeting of the MPC this week – though observers believe the Bank will carry on printing money until QE reaches £895billion in December.
Some members of the MPC, which is responsible for controlling inflation through interest rates and QE, fear the programme may cause the booming economy to overheat.
At its last meeting, former Bank chief economist Andy Haldane sounded the alarm and called for the remaining QE programme to be reduced in scope.
And since then committee members Michael Saunders and Dave Ramsden have both raised concerns as well.
Saunders last month said it may be appropriate to put a stop to QE 'fairly soon', while Ramsden warned inflation could hit 4 per cent this year.
But they are likely to be outnumbered. Other members – including Bank Governor Andrew Bailey – have argued that recent price rises are 'transitory'.
It is also thought some are reluctant to act now, given the Bank is just £58billion short of its £895billion QE target, having already spent £837bn buying bonds with newly created money.