BoE policymakers voted to keep borrowing costs at a
record-low 0.1 per cent, after their first monetary policy meeting since
Britain’s divorce from the European Union at the start of January.
The bank also cut its 2021 gross domestic product growth
forecast to 5.0 per cent from 7.25 per cent, while hinting at the possibility
of implementing negative interest rates later this year.
“Covid-19 vaccination programmes are under way in a number
of countries, including the United Kingdom, which has improved the economic
outlook,” the BoE said.
“Nevertheless, recent UK and global activity has been
affected by an increase in Covid cases, including from newly identified strains
of the virus, and the associated reimposition of restrictions.”
Much of the UK re-entered lockdown in early January to curb
variant strains that are deemed more transmissible, with restrictions similar
to initial Covid curbs imposed in the second quarter of 2020.
However, more than 10 million people in the UK have now
received a first dose of a Covid-19 vaccine.
The BoE meanwhile noted Thursday that Britain and the
European Union reached a trade agreement that has applied since January 1,
averting a chaotic no-deal Brexit.
And it signalled that Britain would likely avoid a
double-dip recession with marginal growth expected in the final three months of
last year.
Negative rates eyed
The BoE also declared today that it was “appropriate” to
start preparations for the potential introduction of negative interest rates in
six months’ time.
A negative interest rate would likely see retail banks
further cutting their own borrowing costs, which would be unwelcome news for
savers but a boost for borrowers.
The radical policy — which has already been employed by the
Bank of Japan and the European Central Bank — has been under consideration for
some time in Britain.
“Commercial banks need at least six months to prepare for
negative rates and the central bank has now put them on notice, potentially
paving the way for negative interest rates from August,” noted AJ Bell analyst
Laith Khalaf.
“It’s likely markets will take this as a negative sign for
longer term UK interest rate policy, even if it is designed simply to cover all
bases as the pandemic continues to elevate economic uncertainty.”
The BoE said that the economy was about eight per cent
smaller in the fourth quarter than before the pandemic began in early 2020.
It expects gross domestic product to shrink by about four
per cent in the first quarter of this year, reversing a forecast for growth.
In response to the pandemic, the BoE and UK government have
pumped billions of pounds into the British economy to stimulate growth and
protect jobs.
The central bank added today that it had maintained its
quantitative easing stimulus programme at £895 billion.
The government has so far spent about £300 billion in
emergency measures to combat economic fallout, including a costly subsidy for
private sector wages. — AFP
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