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December 17, 2020BANK OF ENGLAND MONETARY POLICY The Bank of England Monetary announced that the bank rate would continue to be 0.1% at its Monetary Policy Committee (MPC) meeting today.
In addition, the MPC decided to maintain the total stock of government bond purchases at £875 billion and the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion. The total target stock of asset purchases will be maintained at £895 billion.
Since the MPC’s November Monetary Policy Report (MPR), the success of some COVID vaccine trails and the initial roll out plans over the first half of 2021 reduced some of the downside risks to the UK’s economic outlook. However, recent increases in the number of cases and associated restrictions globally have weighted on the recovery. The Bank expects that the UK-weighted global Gross Domestic Product (GDP) growth to be somewhat weaker than originally forecasted at the time of November MPR report.
In line with the Committee’s expectations, economic activity in the UK increased 0.4% in October 2020, a level that is 8% below the Q4 2019 level. The Committee expects the recently announced social distancing measures to weight more on the Q1 2021 activity levels. Looking ahead, the additional fiscal measures in Spending Review 2020 are expected to boost up GDP by an estimated peak of over 1% during 2021 and 2022.
Additionally, UK trade and GDP are expected to be affected during an initial period of adjustment, over the first half of next year, as the United Kingdom leaves the Single Market and Customs Union on 1 January and is assumed to move immediately to a free trade agreement with the European Union.
CPI inflation increased 0.3% in November, down from a 0.7% increase recorded in October. The recent weakness largely reflects the impacts of COVID on the economy. The Bank expects inflation to increase sharply in the spring as the VAT cut comes to an end and the energy prices stabilize.
The outlook for the economy remains unusually uncertain and depend mainly on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom. The outlook also depends on the responses of households, businesses and financial markets to these developments.
The Committee notes that it will continue to monitor the situation carefully and stands ready to take whatever additional action is ready to achieve its target. The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.
Source: Bank of England, Monetary Policy
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