The Bank of England (BOE) Monetary Policy Committee (MPC) maintained the Bank Rate at 0.1% as focus shifts to meeting a 2% inflation target and supporting the economy, according to BOE press release. BOE raised bond-buying stimulus by a larger-than-expected 150 billion pounds to cushion the economy from the impacts of new coronavirus lockdowns and Brexit damage.
- The MPC will take whatever additional action is necessary if the inflation outlook weakens.
- The outlook for the economy is unusually uncertain, citing the current COVID-19 crisis and unresolved trading relationship with the closest partners in the European Union after January 1
- BOE expects Britain’s economy to shrink by 2% in Q4 and exceed pre-pandemic levels in Q1 2022
- The central bank expects inflation to be closer to 1.5% by the end of 2022, necessitating further policy support.
- Britain faces trade shock risks when the post-Brexit transition within the EU expires on December 31, and trade will suffer even if there is a deal.
- Britain’s GDP will fall 1% due to trade changes in Q1 2021, limiting recovery from Q4 lockdowns and reducing quarterly growth to 2.4%
- Unemployment is set to peak 7.75% in Q2 2021, higher than the recent reading of 4.5%, while GDP is likely to grow by 7.21% in 2021, down from previous 9% forecast
The pound and UK stocks are gaining. GBPUSD is up 0.63%, FTSE 100 is up 0.26%
