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March 19, 2021BANK OF ENGLAND MONETARY POLICY The Bank of England Monetary announced that it would maintain Bank Rate at 1.0% at its Monetary Policy Committee (MPC) meeting.
In addition, the MPC decided to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion and the target for the stock of government bond purchases at £875 billion. The total target stock of asset purchases will be maintained at £895 billion.
Economic outlook in the MPC’s February Monetary Policy Report (MPR) were based on the assumption that the latest round of COVID containment measures would weigh on economic activity in the near term but activity will see strong recovery over 2021 as vaccination programs lead to easing of restrictions. The Bank noted that global economic activity has been stronger than anticipated in the February MPR reflecting the stimulus from the substantial US fiscal stimulus package and positive news on vaccination rollouts across global economies.
The Bank noted that economic activity in UK declined 2.9% in January 2021. While this contraction was lower than expected, the UK GDP is still around 10.0% below its Q4 2019 level. However, significant new policy measures introduced in the UK Budget 2021 including the extension of the Coronavirus Job Retention Scheme are expected to support UK’s economy in the near term.
The extension of the government’s employment support program is expected to keep the increase in the unemployment rate moderate in the near term.
CPI inflation increased 0.7% in January, slightly up from a 0.6% increase recorded in December. The increase in CPI was mainly due to the decline in oil prices seen in early 2020 and the impacts of the pandemic on the economy. The Bank estimates CPI to return to around the 2.0% target level in the spring as the effects of the earlier declines in oil prices dissipate and inflation patterns reflect more recent increases in energy prices.
The Committee notes that the outlook for the economy remains highly uncertain and will depend on the evolution of the pandemic, the success of the vaccination programs and how households and business respond to those developments. Based on the degree of spare capacity present, the Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.
The Committee notes that it will continue to monitor the situation carefully and stands ready to take whatever additional action is ready to achieve its target. The next scheduled date for MPC announcement on bank rate is May 6, 2021. The Bank’s May Monetary Policy Report will be published at the same time.
Source: Bank of England, Monetary Policy Summary
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