Mike Kemp | En images | Getty Images
The BOE raised its 2021 growth outlook for the world’s fifth-largest economy to 7.25%, slightly above analysts’ expectations and up 5% as expected in February.
This follows a 1.5% drop in UK GDP in the first quarter – shallower than expected – and as restrictions on economic activity ease and UK Covid infections continue to decline.
Reflecting on these developments, the BOE said second-quarter GDP “will rise sharply”, while economic output is expected to return to pre-pandemic levels through the end of the year. He had previously said the UK economy would return to pre-pandemic levels in the first quarter of next year.
The UK economy contracted by 10% in 2020 – the worst annual performance in more than three centuries. It was more severe compared to most other European economies, in part due to a slower movement to implement strict public health measures to curb the spread of the coronavirus.
The BOE’s monetary policy committee voted unanimously on Thursday to keep interest rates stable and voted 8-1 to keep its quantitative easing program at current levels.
Andrew Haldane, chief economist at the BOE, voted against the proposal, preferring to reduce the size of the program. Haldane leaves the central bank later this year to become CEO of the Royal Society for Arts, Manufactures and Commerce.
This means that the central bank’s main lending rate remains at an all-time low of 0.1% and its target stock of asset purchases remains unchanged at £ 895 billion ($ 1.2 trillion). ). The central bank said the pace of its government bond purchases “may now be somewhat slowed down”, but warned that was “as expected” in the program’s announcement in November last year. .
“The expected completion point of the procurement program has remained unchanged. This operational decision should not be interpreted as a change in the direction of monetary policy, ”the BOE said in its report.
Hollie Adams | Bloomberg | Getty Images
He sees inflation coming back to around 2% in the medium term.
The latest government data has shown that more than 50.6 million Covid bites have been administered in the UK so far, with almost 35 million first doses and 15.8 million second doses given.
Ahead of the announcement, analysts at Deutsche Bank said they expected it to be “a very close call” on whether the bank has decided to pull the trigger to reduce the pace of developments. asset purchases.
Sanjay Raja, senior UK economist at Deutsche Bank, said in a research note that a decision on downsizing would most likely come at the bank’s June meeting, adding that it “would line up” with the lifting of social restrictions on June 21.
Investors were seen as optimistic about the improving economic outlook for the UK. The UK’s FTSE 100 gained 1.8% in the previous session to post its best daily performance since mid-February. The stock index was last seen trading around 0.1% higher on Thursday.
The pound sterling rose 0.15% against the dollar after the report was released, trading at $ 1.3923, while the euro gained 0.2% against the pound to trade at 86, 50 pence.
Fabrice Montagne, chief British economist at Barclays, told CNBC “Street Signs Europe” on Thursday that the BOE was “already one of the most optimistic central banks” even before raising its economic outlook.
The BOE’s February forecast was at the upper end of the consensus range, Montagne said, and an increase in its projections “now risks sounding overly hawkish and perhaps calling for early hikes.”