A woman wearing a protective face mask crosses the street in front of the Bank of England in the normally morning rush hour in the City of London on March 17, 2020. The UK’s financial district is unusually quiet after the government asked People who were yesterday by Refrain from all but essential travel and activities.
Jonathan Perugia
LONDON – The UK’s central bank kept its monetary policy stance unchanged on Thursday as much of the country enters the holiday season under the highest level of coronavirus restrictions.
The Bank of England kept its main lending rate at 0.1% after slashing from 0.75% twice since the pandemic broke out in March, and kept its target inventory of asset purchases at £ 895 billion ($ 1.2 trillion) ).
At its last meeting in November, the Monetary Policy Committee (MPC) agreed to expand its bond purchases as England entered a month-long national lockdown amid a resurgence of Covid-19 cases.
In Thursday’s report, the MPC noted that successful testing and initial launch of vaccines is likely to reduce the downside risk to the economic outlook identified in November.
“Still, recent global activity has been influenced by the increase in Covid cases and the associated reintroduction of restrictions,” the report said.
“The UK-weighted global GDP growth in the fourth quarter of 2020 is likely to be slightly weaker than expected at the time of the November report.”
Data released last week showed that the UK’s economic recovery nearly stalled in October before tighter measures were taken. According to data from Johns Hopkins University, the country has one of the highest fatalities in Europe, with 65,618 deaths and more than 1.9 million cases as of Thursday morning.
It has also suffered the biggest economic blow, with GDP (gross domestic product) falling and an unprecedented 19.8% in the second quarter.
The bank noted that despite the surge in cases and the lockdown measures that came with it, recent activity has been stronger than expected. However, it was found that the restrictions put in place after the lockdowns were lifted were more severe than expected and are expected to weigh on activity in the first quarter of 2021.
“The outlook for the economy remains unusually uncertain. It will depend on how the pandemic develops and public health measures, as well as the nature and transition to the new trade agreements between the European Union and the UK.” “The MPC said in the report it will monitor the situation closely and be ready to act if the inflation outlook weakens.
UK 12-month CPI (consumer price index) inflation fell from 0.7% in October to 0.3% in November, well below the bank’s 2% target.
“Waiting stuck”
“Just as the Federal Reserve is waiting for news of an economic stimulus package, the Bank of England is waiting for a solution to the Brexit negotiations and has therefore decided to put further stimulus packages on hold,” said Hinesh Patel, portfolio manager at Quilter Investors. in a research report.
“It seems that the BoE are paralyzed by the outcome of a Brexit deal but are still conscious as they try to adjust where they can.”
Patel added that with much of the country in the highest level of Covid restrictions, the bank is on “wait mode” before responding to further economic threats and will remain as accommodative as it has been year round.
Laith Khalaf, financial analyst at AJ Bell, agreed that the bank will not take its next step until it knows which direction Brexit is going.
“In the event of a no-deal, it would likely be ready to weather the temporary surge in inflation resulting from the weaker sterling and the imposition of tariffs, but it couldn’t ignore the economic impact of a disruption.” Brexit, “he said.
“The bank’s governor has stated that no deal would have a greater economic impact than the pandemic in the long term. Therefore, if the Brexit talks fail, we can expect further incentives, either in the form of more QE (quantitative easing) or rate cuts.”
