The Bank of England’s Monetary Policy Committee has kept interest rates at the historically low rate of 0.1 per cent and increased its already huge bond-buying stimulus by a bigger-than-expected 150 billion pounds as it prepared for economic damage from new coronavirus lockdowns and the looming risk of Brexit.
The bank cut its forecasts for Britain’s economy, which it now expects to exceed its size before the COVID-19 pandemic only in the first quarter of 2022. Previously, the BoE had expected the recovery be complete by the end of next year.
“The outlook for the economy remains unusually uncertain,” said the Bank
There are signs that consumer spending has softened across a range of high-frequency indicators, while investment intentions have remained weak it continued.
Household spending and GDP are expected to pick up in 2021 Q1, as restrictions loosen. The level of activity in the first quarter is expected to remain materially lower than in 2019 Q4. UK trade and GDP are also likely to be affected during an initial period of adjustment, over the first half of next year, as the United Kingdom leaves the Single Market and Customs Union on 1 January and is assumed to move immediately to a free trade agreement with the European Union.
Over the remainder of the forecast period, GDP is projected to recover further as the direct impact of Covid on the economy is assumed to wane. Activity is also supported by the substantial fiscal policies already announced and accommodative monetary policy. The recovery takes time, however, and the risks around the GDP projection are judged to be skewed to the downside.
