Bank Of England Keeps Rate, QE On Hold
The Bank of England policymakers left the interest rate at a record low and quantitative easing unchanged after easing policy considerably since the onset of the coronavirus pandemic.
In the accompanying Monetary Policy Report, the bank cautioned that unemployment will rise drastically and the economic and inflation outlook depends critically on the evolution of the pandemic.
The nine-member Monetary Policy Committee unanimously voted to hold the interest rate at 0.10 percent, as widely expected. The bank had altogether reduced the rate by 65 basis points at two unscheduled meetings in March.
The bank retained the size of the asset purchase programme at GBP 745 billion. All members judged that the existing stance of monetary policy was appropriate.
Markets expect the BoE to bring key rates to negative zone like its other major counterparts, namely the European Central Bank and the Bank of Japan.
At the August meeting, BoE policymakers said the negative policy rates at this time could be less effective as a tool to stimulate the economy.
The MPC said it does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2 percent inflation target sustainably.
“The BoE still has the door open for further policy action – probably at the November meeting when a new MPR is released and we will know more about the UK’s future relationship with the EU,” Chris Turner and Antoine Bouvet, economists at ING, said.
The outlook remains unusually uncertain, the bank said. It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors.
GDP is expected to have been over 20 percent lower in the second quarter of 2020 than in the fourth quarter of 2019. Economic output is not projected to exceed its level in the fourth quarter of 2019 until the end of 2021.
According to the central bank, the fall in the second quarter GDP is expected to be less severe than assumed in the May Report. Inflation is forecast to turn briefly negative in the near term, falling to -0.3 percent in August.
Inflation will fall further below the 2 percent target and average around 0.25 percent in the latter part of the year, largely reflecting the direct and indirect effects of Covid-19, the bank said. Nonetheless, in two years’ time, inflation is forecast to be around 2 percent.
Employment has fallen since the Covid-19 outbreak. In the near term, the unemployment rate is projected to rise materially, to around 7.5 percent by the end of the year.
The material has been provided by InstaForex Company – www.instaforex.com