Bank of England votes unanimously to keep interest rate and QE unchanged

imageEconomy16 hours ago (Mar 18, 2021 12:05)

© Reuters.

By Samuel Indyk – The Bank of England has today decided to keep its interest rate and asset purchase programme unchanged in a unanimous decision. The Monetary Policy Committee (MPC) also stated that they judged that the existing stance of monetary policy remains appropriate.

“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,” the Bank of England’s MPC said in a statement.

Economic Recovery

“The outlook for the economy, and particularly the relative movement in demand and supply during the recovery from the pandemic, remains unusually uncertain,” the Bank said. “It continues to depend on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments.”

On the recent rise in global yields, the Bank of England noted that the upward movement appears to have been driven by positive news on global economic growth, including on some vaccination programmes and vaccine effectiveness, as well as the size of the US fiscal support package.

“The Bank of England and the US Federal Reserve are singing from the same hymn book, seeing inflation rises as transient rather than a nagging worry here to stay,” said Hargreaves Lansdown (LON:HRGV) Senior Investment and Markets Analyst Susannah Streeter.

“Although a stronger outlook of consumption growth is expected in the UK in the second quarter of 2021, the Bank has underlined that the economy is still 10% smaller than it was before the pandemic, so there still is a long way to go on the road to recovery,” Streeter added.

Market Reaction

The initial reaction in UK asset classes has been relatively muted as the Bank of England provided no real surprises in their statement.

GBP/USD trades with slight losses on the day while the FTSE 100 is also marginally lower. United Kingdom 10-Year gilt yields fell marginally after the statement and minutes but still remain higher by 6 basis points on the day, just below 0.9%.

“Given that the central bank didn’t deliver much of a surprise, it leaves our upbeat GBP outlook unchanged,” said ING analysts in an emailed statement. “With the Fed being cautious and likely to preside over very negative front-end US real rates, this should facilitate a further increase in GBP/USD, towards 1.50 later this year.”

Bank of England votes unanimously to keep interest rate and QE unchanged

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