Bank Of England’s Monetary Policy Committee To Keep Interest Rates On Hold

The MPC voted unanimously to maintain Bank Rate at 0.1% and to continue with the existing programme of £200 billion of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves. The Committee voted by a majority of 8-1 to increase the target stock of purchased UK government bonds, financed by the issuance of central bank reserves, by an additional £100 billion, to take the total stock of asset purchases to £745 billion.

Commenting on the decision to keep interest rates on hold and expand quantitative easing, Suren Thiru, Head of Economics of the British Chambers of Commerce (BCC), said: “The Bank of England’s decision to significantly expand quantitative easing reflects the unprecedented impact of coronavirus on the UK economy. It is vital that the Bank works with financial institutions to ensure that it translates into on the ground support for businesses.”

“With economic conditions likely to remain challenging in the near term, further easing remains likely. However, with interest rates already at an historical low, extra loosening of monetary policy is unlikely to provide a significant boost to the economy. The central bank has rightly decided against moving interest rates into the negative, which risks doing more harm than good.

“The focus instead should be on delivering a fiscal environment that limits economic scarring and helps kickstart a recovery. This should include taking steps to close the remaining gaps in government support, including giving businesses with direct incentives to invest and hire, and stimulating consumer demand through a temporary, but significant cut in VAT.”

Alpesh Paleja, CBI Lead Economist, said:

“The Bank of England have today built on their already hefty policy response to the economic downturn. The Monetary Policy Committee are clearly getting ahead of the large downside risks to the outlook, and the prospect of longer-lasting damage to the economy.

“As lockdown is eased, effectively curbing the pandemic and ensuring businesses remain supported must go hand-in-hand. Along with the weight of monetary policy, implementing a recovery plan which creates jobs and reskilling opportunities which support sustainable growth in the long-term will be essential.”