BoE leaves Bank Rate at 0.1%, as widely expected

The Bank of England (BoE) announced its Monetary Policy Committee (MPC) voted 9-0 to maintain Bank Rate at 0.1 percent at its December meeting, as widely expected.

The MPC also voted unanimously to continue with its existing programmes of UK government bond and sterling non-financial investment-grade corporate bond purchases, maintaining the target for the total stock of these purchases at £895 billion.

In its statement, the BoE notes:

• MPC judged that existing stance of monetary policy remains appropriate;
• MPC will continue to monitor the situation closely; if outlook for inflation weakens, Committee stands ready to take whatever additional action is necessary to achieve its remit;
• MPC 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 2%-inflation target sustainably;
• Outlook for the economy remains unusually uncertain; it depends on evolution of the pandemic and measures taken to protect public health, as well as nature of, and transition to, new trading arrangements between EU and UK, and the responses of households, businesses and financial markets to these developments;
• Covid-19 vaccine rollout is likely to reduce the downside risks to the economic outlook;
• Recent global activity has been affected by increase in Covid cases and associated re-imposition of restrictions;
• UK-weighted global GDP growth in 2020 Q4 is likely to be little weaker than expected in November;
• Restrictions are expected to weigh more on activity in 2021 Q1;
• Successful rollout of vaccines should support gradual removal of restrictions and rebound in activity that was assumed in November;
• Additional fiscal measures in Spending Review 2020 are likely to boost GDP by estimated peak of over 1% during 2021-22
• Extension of the government’s employment support schemes is likely to limit significantly near-term rise in unemployment, although substantial further increase is still likely over next few quarters;
• CPI inflation is expected to rise quite sharply towards target in spring, as VAT cut comes to end and large fall in energy prices earlier this year drops out of annual comparison.