Sunday, July 25, 2021
HomeBank of England keeps rates unchanged as consumer spending outlook boosted

Bank of England keeps rates unchanged as consumer spending outlook boosted


The Bank of England has kept interest rates and quantitative easing on hold as it said the rapid rollout of the vaccination programme and road map for easing restrictions would help drive an economic rebound this year.

The Bank said the Prime Minister’s plans would see England brought out of lockdown faster than it expected, helping to deliver a “slightly stronger” rise in consumer spending than it previously predicted.

But minutes of the latest rates decision showed the outlook for the economy remained “unusually uncertain”, adding it was unclear how the spending boost would impact its forecasts for growth.

Andrew Bailey comments / PA Wire

The rates decision comes amid growing concerns of an inflation surge at the end of the year, driven by the economic bounce-back, which has seen financial markets pencil in rate rises in 2022.

The Bank said consumer prices index (CPI) inflation – currently at 0.7% – is set to quickly return to around 2% in the spring, due in part to recent increases in energy prices.

It added: “The MPC will continue to monitor the situation closely. If the outlook for inflation weakens, the committee stands ready to take whatever additional action is necessary to achieve its remit.

“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.”

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘’Although the bank is clearly still operating in crisis mode, continuing to heavily grease the financial wheels of the economy, it is shrugging its shoulders at the mini tantrum which has been playing out in the bond markets.

“There has been spike in bond yields over recent weeks, fuelling worries about just how affordable the government debt pile will be to service over the coming years.

“But the bank seems to take the position that the expected upturn in prices as the recovery continues, and the jump in oil prices feeds in, won’t lead to a sustained period of higher inflation in the medium term.


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