Bank of England keeps rates at record lows

BoE commits itself to continued bond-buying and low interest rates

The Bank of England kept interest rates at their record low levels on Thursday, leaving its benchmark interest rate unchanged at 0.1 per cent.

The central bank also maintained its bond-buying package at £895m ($1.2trn, €1trn), with such measures to continue until it sees “significant progress” in a post-Covid recovery and in achieving its inflation target of 2 per cent.  

Minutes of a meeting of the central bank’s Monetary Policy Committee recognised that “news on near-term economic activity had been positive, although the extent to which that news changed the medium-term outlook was less clear”.

The BoE’s approach can be said to have been essentially in line with its US counterpart the Federal Reserve, which yesterday committed itself to ultra-low rates until 2023 at the earliest and continued bond-buying.

Only hours after the yield on 10-year US Treasury bonds rose to a 14-month high, the BoE indicated that it was not overly concerned with recent events in the global bond market, which it argued reflected an improved economic prospectus.

The bank observed that “advanced economy longer-term government bond yields have risen rapidly to levels similar to those seen shortly before the pandemic”.

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It nonetheless stated: “For the most part this has reflected higher real yields. Risky asset prices have remained resilient. In the United Kingdom, the sterling effective exchange rate has appreciated and mortgage credit conditions have eased a little. An aggregate measure of UK financial conditions has been broadly unchanged since the February Report.”

Shortly after the BoE’s comments, the 10-year Gilt yield rose by more than 4 basis points, as high as 0.9 per cent, its highest level since mid-2019.

By mid-afternoon, the FTSE 100 traded up 0.37 per cent, while the pound strengthened 0.32 per cent against the euro and stood essentially flat against the dollar.

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