The Bank of England’s stewards voted unanimously on Wednesday to keep policy unchanged, arguing that it was nowhere near close to starting to raise short-term interest rates.
Like the US Federal Reserve the day before, the Monetary Policy Committee said it did 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.”
Since the MPC’s last set of economic projections in February, global GDP had grown more quickly than expected, first quarter UK growth had been stronger and the outlook for consumption at home in the second quarter had improved slightly.
Furthermore, fresh fiscal stimulus in the States had strengthened the outlook, as did the rapid rollout of vaccination programmes in advanced economies.
Indeed, restrictions on activity in the UK might be lifted “somewhat” more rapidly than the MPC had assumed.
And yet, risky asset prices had remained resilient, sterling had appreciated and mortgage credit conditions had eased a tad, policymakers noted.
Furthermore, inflation expectations remained well anchored.
So while inflation was expected to rebound rapidly back towards the MPC’s 2.0% target in the spring, in no mean part as oil prices did the same, they judged that “these developments should have few direct implications for inflation over the medium term.”
Hence the decision to keep Bank Rate at -0.1%, the size of the Asset Purchase Facility was kept at £875bn.
