BoE raises growth forecasts and leaves rates unchanged

Bank of England Governor Andrew Bailey: 'We've not seen a recovery like this'

Band of England building                                 

The Bank of England upgraded its growth forecast for the COVID-hit UK economy on Wednesday and heavily indicated it would not raise interest rates in the near future.

Having previously expected 5% growth, the BoE now envisions growth of 7.25% for 2021.

It left interest rates and its £895bn ($1.2trn, €1trn) quantitative easing programme unchanged but did decide to slow the rate of its asset purchases, while extending them to the end of 2021.

The central bank’s quarterly Monetary Policy Committee report argued that the British economy’s recovery from the worst economic crisis in three centuries was already well under way.

The report said: “GDP is expected to rise sharply in 2021 second quarter, although activity in that quarter is likely to remain on average around 5% below its level in the fourth quarter of 2019. GDP is expected to recover strongly to pre-COVID levels over the remainder of this year in the absence of most restrictions on domestic economic activity.”

The MPC dismissed the prospect of runaway inflation but ceded the likelihood that the consumer prices index would temporarily rise above the BoE’s 2% target towards the end of 2021, due to higher energy prices and raw material costs.

In an ambivalent mood, Bank governor Andrew Bailey warned in a news conference following the decision that people should not get “carried away” by the recovery, while also stating: “I don’t think we’ve had a bounce back quite of this nature, certainly in modern times.”

By mid-afternoon, the FTSE 100 traded up by only 0.17% while the more domestically-orientated FTSE 250 stood 0.4% higher at 22483.60, up 9% since the start of the year.

The pound stood down 0.2% and 0.7% on the dollar and euro at $1.387 and €1.150, respectively.

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