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 keep the Bank Rate at 0.1 percent at its May meeting, as widely expected.

The MPC also voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases at GBP20 billion and voted by a majority of 8-1 to continue with the existing programme of UK government bond purchases at GBP875 billion, thus maintaining the total target stock of asset purchases at GBP895 billion.

In its statement, the BoE notes:

• Global GDP growth is likely to have slowed in Q1 2021, as Covid-related restrictions weighed on economic activity, although growth appears to have been stronger than expected in the February Report;
• UK GDP is expected to have fallen by around 1.5% in 2021 Q1, less weak than was assumed in the February Report;
• UK GDP is expected to rise sharply in Q2 2021, although activity in that quarter is likely to remain on average around 5% below its level in Q4 2019;
• UK GDP is expected to recover strongly to pre-Covid levels over the remainder of this year in the absence of most restrictions on domestic economic activity;
• After 2021, the pace of GDP growth is expected to slow;
• MPC also expects medium-term equilibrium rate of unemployment to rise by less than was forecast in February;
• Inflation is projected to rise to close to the target in near term;
• In central projection, CPI inflation rises temporarily above the 2% target towards the end of 2021, owing mainly to developments in energy prices; these transitory developments should have few direct implications for inflation over medium term, however;
• Outlook for the economy, and particularly the relative movement in demand and supply, remains uncertain;
• In central projections of MPC’s May Report, the economy experiences temporary period of strong GDP growth and temporary period of modestly above-target CPI inflation, after which growth and inflation fall back, with inflation around the target two and three years ahead;
• 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;
• In judging the appropriate stance of monetary policy, Committee will, consistent with its policy guidance and as always, focus on the medium-term prospects for inflation, including the balance between demand and supply, rather than factors that are likely to be transient.
• Committee judged that the existing stance of monetary policy remained appropriate.