Bank of England is keeping interest rates stable as the outlook for the corona virus remains uncertain

A woman in a protective face mask crosses the road in front of the Bank of England in what would normally be the morning rush hour in the City of London on March 17, 2020. The UK’s financial district has been unusually quiet after the government has requested that Yesterday to refrain from everything except essential travel and activities.

Jonathan Perugia

LONDON – The UK’s central bank maintained its monetary policy stance unchanged on Thursday as much of the country enters the festive period under the highest level of coronavirus restrictions.

The Bank of England maintained its key lending rate at 0.1%, having been cut twice from 0.75% since the pandemic began in March, and maintained its target share purchases at £ 895 billion ($ 1.2 trillion) .

At its last meeting in November, the Monetary Policy Committee (MPC) voted to expand bond buying as England entered a month-long national lockdown amid a resurgence of Covid-19 business.

In Thursday’s report, the MPC noted that the successful trial and initial rollout of vaccines would likely reduce the downside risk to the economic outlook identified in November.

“Nevertheless, recent global activity has been impacted by the increase in Covid cases and the associated re-imposition of restrictions,” the report said.

“UK-weighted global GDP growth in 2020 Q4 is likely to be slightly weaker than expected at the time of the November report.”

Data released last week showed that the UK economic recovery almost came to a halt in October, before tougher measures were taken. According to data from Johns Hopkins University, the country has one of the highest death tolls in Europe, with 65,618 deaths and more than 1.9 million recorded on Thursday morning.

The country has also suffered the worst economic blow, with GDP (gross domestic product) falling an unprecedented 19.8% in the second quarter.

The Bank noted that recent activity has been stronger than expected, despite the increase in the number of cases and the associated lockdown measures. However, it noted that the restrictions put in place after the lockdowns were lifted were tougher than expected and are expected to weigh on activity in the first quarter of 2021.

The outlook for the economy remains extremely uncertain, depending on the evolution of the pandemic and the measures taken to protect public health, as well as the nature of and transition to the new trade arrangements between the European Union and the United Kingdom The MPC said in the report, adding that it will keep a close eye on the situation and is ready to act if the outlook for inflation 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.

‘Stuck waiting’

“Just as the Federal Reserve is waiting for news of a stimulus package, the Bank of England is waiting for the Brexit negotiations to be concluded and as such they have chosen to keep further stimulus measures on hold,” said Hinesh Patel, portfolio manager at Quilter Investors. in a research note.

“It appears the BoE is paralyzed by the outcome of a Brexit deal, but is still conscious and trying to adjust where they can.”

Patel added that with much of the country in the highest level of the Covid restrictions, the bank is in “wait and see mode” before responding to further economic threats, and will remain as accommodative as the whole. year round.

AJ Bell Financial Analyst Laith Khalaf agreed that the Bank will not take its next step until it knows which way Brexit is headed.

“In the event of a no-deal it would probably be willing to look through the temporary inflation jump due to the weaker pound sterling and the imposition of tariffs, but it could be the economic impact of a disorderly Brexit,” he said .

The bank’s governor has said no deal would have a greater long-term economic impact than the pandemic, so we can expect further stimulus if the Brexit talks fail, either in the form of more QE (quantitative easing) , or interest rate cuts. “