Bank of England predicts strong COVID recovery with biggest economic rebound since WWII

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Bank of England predicts strong COVID recovery with biggest economic rebound since WWII


The Bank of England has revalued its growth forecast for the coronavirus-hit UK economy and signaled that it will not raise interest rates in the short term – despite an imminent rise in inflation ahead.

The last meeting of the central bank’s interest rate setting committee left policy unchanged with rates remaining at their COVID-19[feminine[feminine crisis low of 0.1% as analysts had widely anticipated.

Its £ 895 billion asset purchase program, known as quantitative easing, has also remained static.

But its quarterly monetary policy report indicated that the vaccine-driven recovery of the economy hardest hit for over 300 years in 2020 was clearly underway at a faster pace than initially expected.

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The Governor of the Bank of England is Andrew Bailey

The Bank said it had now grown 7.25% in 2021, which would be the strongest since 1941.

This is up from the 5% growth previously forecast.

The Bank now sees its GDP fall by just 1.5% in the first quarter affected by the lockdown, against the dreaded drop of more than 4% in February.

The report states: “GDP (gross domestic product) is expected to increase sharply in the second quarter of 2021, although activity during that quarter is likely to remain on average around 5% below its level in the fourth quarter of 2019.

“GDP is expected to recover strongly to pre-COVID levels for the remainder of this year in the absence of most restrictions on domestic economic activity. “

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The Bank predicted that consumer spending would be a major driver of the recovery – with people spending around 10% of their accumulated foreclosure savings.

But he warned of the potential “downside risks” to his prospects. coronavirus variants – and Gov. Andrew Bailey told a press conference that people shouldn’t get “carried away” by the recovery.

He referred to two years of lost output growth and added: “Overall, the MPC (Monetary Policy Committee) believes that the risks to the central GDP projection are biased downward over the course of the period. first year of the forecast period, but overall. balanced further. “

Mr Bailey also said it was too early to judge the impact Brexi had delivered.

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Ex-factory prices are increasing globally, with costs gradually being passed on to consumers

The Bank’s forecast for accelerating growth was underpinned by a closely watched business survey, released earlier Thursday, which showed the biggest jump in business activity since 2013 in April for the services sector.

The IHS Markit / CIPS Purchasing Managers Index (PMI) recorded a reading of 61 – down from 56.3 in March – with any reading above 50 indicating growth.

He noted “sharp increases” in business and consumer spending, as coronavirus restrictions continued to ease.

The latest round of PMI reports also highlighted price spikes for companies due to rising costs of transportation and raw materials.

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The Services PMI reported the largest increase in costs for businesses in more than four years and widespread evidence that these are being passed down the supply chain.

Mr Bailey said there was still little evidence of a pass-through to output prices, but in its report, the Bank said it expected the measure of inflation from l The consumer price index (CPI) exceeds its target of 2% by the end of the year. its current level of 0.7%.

He pointed to a surge in energy prices as the main cause, but added that he was not unduly concerned about the outlook, with the CPI expected to quickly return to target and the suggested rates would remain at current levels at. support for the recovery.

This post reflects comments from other central banks, including the US Federal Reserve, which have indicated that they are prepared to tolerate the spike in inflation by maintaining the support they have provided to their economies to help the resumption of employment.

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