A woman wearing a protective 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 financial district is unusually quiet after the government asked people yesterday to refrain from all exceptional travel and activities.
Jonathan Perugia
LONDON – The UK central bank on Thursday maintained its monetary policy stance unchanged as much of the country enters the holiday season under the highest level of coronavirus restrictions.
The Bank of England maintained its main credit rate at 0.1%, having fallen twice by 0.75% since the start of the pandemic in March and maintained its target stock of asset purchase at £ 895 billion ($ 1.2 trillion).
At its last meeting in November, the Monetary Policy Committee (MPC) voted to extend the bond purchase as England entered a month-long national closure amid a resurgence of Covid-19 cases. .
In Thursday’s report, the MPC noted that the success of the trial and the initial deployment of vaccines is likely to reduce the downside risk to the economic outlook identified in November.
“However, recent global activity has been affected by the increase in Covid cases and the associated re-imposition of restrictions,” the report states.
“Weighted world GDP growth in the UK in the fourth quarter of 2020 is likely to be slightly weaker than expected at the time of the November report.”
Data released last week showed the UK’s economic recovery came to a halt almost in October, ahead of the implementation of stricter measures. The country has one of the highest death tolls in Europe, with 65,618 deaths and more than 1.9 million cases recorded Thursday morning, according to data collected by Johns Hopkins University.
It has also suffered the greatest economic success, with GDP (gross domestic product) falling and an unprecedented 19.8% in the second quarter.
The Bank noted that recent activity has been stronger than expected, despite the increase in cases and associated blocking measures. However, he noted that the restrictions introduced after the lifting of the blockades have been stricter than expected and are expected to weigh on activity in the first quarter of 2021.
“The outlook for the economy remains unusually uncertain. It depends on the evolution of the pandemic and the measures taken to protect public health, as well as the nature and transition to new trade agreements between the European Union and the United Kingdom. United, “the MPC said in the report, adding that it will closely monitor the situation and is willing to act if the inflation outlook weakens.
12-month CPI (consumer price index) inflation in the UK fell to 0.3% in November, from 0.7% in October, well below 2% target of the bank.
“Caught waiting”
“Just as the Federal Reserve awaits the news of a stimulus package, the Bank of England is stuck waiting for Brexit negotiations to be resolved and, as such, have chosen to maintain new stimuli pending, “Hinesh Patel, portfolio manager at Quilter Investors, said in a research note.
“It seems the BoEs are paralyzed by the outcome of a Brexit deal, but they are still aware as they try to adapt where they can.”
Patel added that with much of the country at the highest level of Covid restrictions, the Bank will be in “standby and watch mode” before responding to any other economic threat and will remain as accommodating as it has been throughout. the year.
AJ Bell financial analyst Laith Khalaf agreed that the bank will not take the next step until it knows where Brexit is going.
“In the event of a disagreement, I would probably be willing to examine the temporary jump in inflation as a result of the weakening pound sterling and the imposition of tariffs, but I could not turn a blind eye to the economic impact of a messy Brexit, ”he said.
“The bank’s governor has said that no agreement would have a greater long-term economic effect than the pandemic, so we can expect a new stimulus in the event that talks on Brexit fail, either in the form of more QE (quantitative easing) or interest rate cuts “.