Bleak outlook for UK savers & the economy17 Sep 2020 13:45
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(Alliance News) -Â The Bank of England on Thursday kept interest rates on hold, as expected, and said it is looking with regulators into how pushing Bank Rate into negative territory could be implemented if needed.
The nine-strong Monetary Policy Committee voted unanimously to maintain Bank Rate at 0.1%, while also voting to maintain the target for bond purchases at GBP745 billion.
The rate-setting body noted that the outlook for the economy remains "unusually uncertain", though said that recent data have been slightly stronger than expected.
The BoE expects gross domestic product in the third quarter to be around 7% below its level in the fourth quarter of 2019, "less weak than had been expected in the August Report."
"Administrative data suggest that the number of paid employees has fallen by around 700,000 between February and August. The number of furloughed workers has continued to decline; considerable uncertainty remains around the labour market after the government job support schemes unwind," the BoE said as it turned its eye to the labour market.
Inflation is expected to remain below 1% until early 2021, albeit "slightly higher than expected" at the time of the August monetary policy report.
"The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably," the BoE said.
Looking out, the central bank said recent upticks in Covid-19 cases in some parts of the world, including the UK, have the potential to weigh further on economic activity, though this is likely to be on a lesser scale than seen earlier in the year.
The MPC said it will continue to monitor the situation "closely" and stands ready to adjust monetary policy if needed. The committee will keep under review the possible actions that could be taken.
Minutes of the meeting showed: "The committee had discussed its policy toolkit, and the effectiveness of negative policy rates in particular, in the August Monetary Policy Report, in light of the decline in global equilibrium interest rates over a number of years. Subsequently, the MPC had been briefed on the Bank of England's plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates. The Bank of England and the Prudential Regulation Authority will begin structured engagement on the operational considerations in 2020 Q4."
The pound was quoted at USD1.2902 after the BoE decision, having traded above the USD1.2960 mark prior to the announcement.
By Lucy Heming;Â lucyheming@alliancenews.com
Copyright 2020 Alliance News Limited. All Rights Reserved.
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