Bank of England Sees UK’s Economic Growth At 7.25% In 2021

Summary

• BoE has kept the interest rate unchanged at the existing all-time low level of 0.1 per cent
• The BoE’s May Monetary Policy Report noted that the economic activity picked up a stronger momentum during the recent months than was earlier expected.
• The size of the quantitative easing in the form of bond-buying programme was retained at £895 billion.

The Bank of England (BoE), while keeping the interest rate unchanged at the existing all-time low level of 0.1 per cent has forecasted today that the British economy will rebound by 7.25 per cent, this year due to the easing of the coronavirus restriction. The BoE’s earlier forecast made in February was much lower of 5.0 per cent for the year. The unemployment forecast has also been revised.

The BoE’s May Monetary Policy Report noted that the economic activity picked up a stronger momentum during the recent months than was earlier expected.  The pandemic had led the UK economy to shrink by a sizeable 9.8 per cent in 2020, which was the nation’s largest slowdown in the past three centuries.

With a successful vaccination drive in place, coronavirus related restrictions are getting eased across the nation. This would lead to an expansion in the economic activity, generating higher GDP (gross domestic product) than earlier anticipated by the central bank. However, the overall size of the economy would still remain lower than it was at the end of 2019, before the pandemic struck the nation, said Andrew Bailey, governor, BoE.

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Unemployment forecast

The BoE has projected unemployment in the UK to increase only slightly to a peak of nearly 5.5 per cent in Q3 2021. This would be the time when government’s jobs protection scheme expires.

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Bond buying program

The Bank also announced that it has slowed down the speed of its stimulus program without tightening the monetary policy in any manner. The BoE has planned to lower the quantity of weekly bonds it buys to £3.4 billion (from the existing rate of £4.4 billion per week). The completion plan of the bond buying program remains unchanged.

8 out of 9 members of the MPC (monetary policy committee) favoured to keep the total amount of asset purchases as-it-is. The size of the bond-buying programme was retained at £895 billion. The Bank’s chief economist Andy Haldane, voted in opposition to the move fearing a sharp rise in inflation. He wanted to reduce the programme size to £845 billion instead.

Inflation

The central bank has predicted the UK consumer price inflation (CPI) to rise to its 2 per cent target by the end of the year due to a surge in commodity prices, though presently it remains below the target level. The current low inflation can be attributed to the weak pace of economic growth.

Also Read: BoE MPC March 2021: Rates Kept At 0.1%, Policy Stance Remains ‘Appropriate’