The stage is set for sustained and robust economic expansion

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In the UK, from a record low of around 0.1pc in August 2020, the interest rate on a 10-year gilt fell to 0.8pc.

Despite the current euphoria over the outlook for global growth, losses to bondholders and potential risks to stock valuations associated with rising benchmark interest rates are now the main issue in the markets.

Investors are wondering if the pandemic marks the end of the 40-year interest rate cut.

If the recovery goes as planned and inflation risks materialize, benchmark rates will need to rise much more.

So far, however, the BoE seems relaxed about potential inflation risks.

In its last monetary policy report in February, the BoE forecast that inflation would approach its target rate of 2% by the end of the year and hover around that level until 2023.

While the BoE appears likely to improve its economic assessment in the May Monetary Policy Report, it will continue to project only modest inflation close to its target.

In the short term, this accommodating attitude towards inflation risks will justify the BoE’s aggressive easing bias.

After a decade of modest disinflation, the BoE will need to see inflation risks materialize before it expects inflation to exceed its target.

In the minutes of the March monetary policy meeting, BoE policymakers pointed out that policy could be eased further if the outlook for inflation weakens.

Until 2021, the BoE will continue to stimulate demand through massive bond purchases and a record key rate of 0.1 pc.

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