By Jason Douglas 
 

LONDON--The Bank of England held its benchmark interest rate steady and stuck to its bond-buying schedule, the latest sign of caution among major central banks as the global economy recovers from the coronavirus pandemic.

The BOE said it expects annual inflation to rise to twice its 2% target this year but that the pickup in price-growth will prove temporary, echoing the view of the Federal Reserve that a recent surge in U.S. inflation will fade.

Officials on the rate-setting Monetary Policy Committee voted unanimously to keep the BOE's benchmark interest rate at 0.1%, the BOE said in a statement Thursday. The panel voted seven to one in favor of maintaining the BOE's government bond-buying target at 875 billion pounds($1.215 trillion). Dissenter Michael Saunders said he'd prefer to stop purchases immediately to tame inflationary pressures.

The world's major central banks have signaled that they are wary of withdrawing stimulus from their economies too soon despite gathering recoveries and rising prices, given the uncertain path of recovery as new variants of the virus such as Delta spark fresh outbreaks of Covid-19.

The Fed isn't expected to nudge up short-term interest rates until 2023, though it has signaled it may start reducing the pace of its asset purchases later this year if the U.S. economy keeps humming. The European Central Bank, by contrast, said last month it expects to keep stimulus going for longer as the eurozone labors under a wave of Delta-driven infection and inflation remains stubbornly low.

BOE Governor Andrew Bailey reiterated Thursday that officials don't plan to tighten policy until they're satisfied their inflation goal will be met. Some modest tightening might be needed in the next two to three years to bring inflation back to 2%, he said. Investors anticipate interest rates are unlikely to rise until late next year or early 2023.

In its quarterly monetary policy report, the BOE said it expects the U.K. to grow 5% in the second quarter and 3% in the third, as the economy reaps the benefits of widening vaccination coverage and easing public-health restrictions. The U.K. economy, which suffered its deepest slump in 300 years in 2020, should regain its pre-pandemic size by the final quarter, the central bank said.

The bank also set out its latest thinking on how to tighten policy and reduce its enormous stock of assets when the time comes. It said it expects to nudge up interest rates first, and will only consider reducing its stock of assets by ceasing to reinvest the proceeds from maturing bonds when the benchmark rate has reached 0.5%, a lower threshold than it planned before the pandemic.

Write to Jason Douglas at Jason.Douglas@wsj.com

(END) Dow Jones Newswires

August 05, 2021 08:47 ET (12:47 GMT)