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Bank of England holds interest rates at 0.1%

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The Bank of England's Monetary Policy Committee has voted unanimously to maintain Bank Rate at 0.1%. The Committee judged that GDP growth slowed in Q1 as Covid-related restrictions continued to weigh on economic activity, although it said growth appears to have been stronger than predicted in its 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, and is expected to rise sharply in Q2 as restrictions on economic activity ease. Despite this, activity in the quarter is likely to remain around 5% below Q4 2019 levels.

Although there is a decline in health risks going forward, the Committee said that the outlook for the economy "remains uncertain". In its report, the MPC said that the economic outlook "continues to depend on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments".

In the central projections of the MPC’s May Report, the economy experiences a temporary period of strong GDP growth and a 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.

Twelve-month CPI inflation rose from 0.4% in February to 0.7% in March. The MPC predicts that CPI inflation will rise temporarily above the 2% target towards the end of 2021, owing mainly to developments in energy prices. However it says these transitory developments should have few direct implications for inflation over the medium term.

In its report, the MPC concluded: In judging the appropriate stance of monetary policy, the 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. The MPC will continue to monitor the situation closely and will take whatever action is necessary to achieve its remit. The 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.

Posted by MMB Finance Swindon on 9 May 2021