The Bank of England (BoE) is keeping the Bank Rate at 0.1 percent, in its effort to meet the two percent inflation target and to help sustain growth and employment at a time of extreme economic and financial impact from the COVID-19 pandemic.
At its meeting on Wednesday the Bank’s Monetary Policy Committee (MPC) voted unanimously to maintain the rate, the BoE announced on Thursday.
“The outlook for the economy remains unusually uncertain,” the Bank said, referring not just to thepademic, but also the uncertainty over whether the UK will enter a comprehensive free trade agreement with the European Union on 1 January 2021.
The Bank said that indicators of global activity have been broadly in line with the Committee’s expectations at the time of the August MPC meeting. The sterling exchange rate index has fallen by about two percent, in part reflecting recent Brexit developments, the BOE said.
The Bank noted that in July GDP for the UK was about 18.5 percent higher than its low point in April, but was also about 11.5 per cent lower that the 2019 Q4 level.
There were some indications though that the economy was edging closer to some level of normality.
“High-frequency payments data suggest that consumption has continued to recover during the summer and is now at around its start-of-year level in aggregate, stronger than expected in the August Report,” the Bank said.
On the flip side, “iInvestment intentions have remained very weak and uncertainties among businesses are elevated,” the Bank said.
For 2020 Q3 as a whole, the BoE expects GDP to be about seven percent below its 2019 Q4 level — less weak than had been expected in the August Report.
On employment, the number of paid employees has fallen by around 700,000 between February and August.
“The number of furloughed workers has continued to decline; considerable uncertainty remains around the labour market after the government job support schemes unwind,” the Bank said.
Meanwhile, 12-month Consumer Price Inflation (CPI) fell from one percent in July to 0.2 percent in August, which the Bank said was consistent with temporary impacts on inflation from the Government’s Eat Out to Help Out scheme and the cut in VAT for hospitality, holiday accommodation and attractions.
CPI inflation is expected to remain below one percent until early 2021, slightly higher than expected at the time of the August Report.
“The path of growth and inflation will depend on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom,” the BoE said.
“It will also depend on the responses of households, businesses and financial markets to these developments.”
The Bank said that recent increases in COVID-19 cases in some parts of the world, including the United Kingdom, have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year.”
Meanwhile, “the Committee 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 two percent inflation target sustainably,” the Bank said.