LONDON: The Bank of England kept its key interest rate on hold Thursday amid rising optimism over the British economy's prospects later this year in the wake of the rapid rollout of coronavirus vaccines.
In a statement accompanying its decision, the bank’s rate-setting Monetary Policy Committee said the economy is “projected to recover rapidly towards pre-COVID levels over 2021, as the vaccination programme is assumed to lead to an easing of COVID-related restrictions and people’s health concerns.”
The decision to keep policy unchanged was unanimous among the committee's nine members.
The central bank has been proactive through the pandemic, cutting its main interest rate to a record low of 0.1% and splashing out a further 450 billion pounds ($615 billion) in its bond-buying program.
The U.K.'s rapid rollout of coronavirus vaccines has improved the economic outlook and lowered expectations of another move imminently. The bank nevertheless expects the British economy to contract by a further 4% in the first quarter of 2021, in contrast to an anticipated rise during its last set of forecasts in November.
If that fall is confirmed, the British economy would be around 12% smaller than it was at the end of 2019 before the coronavirus started hurting economic activity.
The bank expects a pickup later this year that would see the economy grow 5% over the course of 2021 and 7.25% in 2022.
The U.K. has imposed tough restrictions on public life to try to contain a spike in new coronavirus cases that has been largely blamed on a new variant first identified at the end of 2020 in London and around southeast England.
Because of the potential of new variants, the rate-setting panel said the outlook for the economy remains "unusually uncertain."
As of Wednesday, more than 10 million people in the U.K. have received their first vaccine doses, nearly a fifth of the adult population. That's far more than other countries in Europe, for example, and has spurred hopes that lockdown restrictions will be eased sooner, allowing the economy to recover quickly.
The bank will hold a news conference later. In addition to the bank's view on the the vaccine rollout, there will be interest on what Governor Andrew Bailey says about the recently agreed trade deal between the U.K. and the European Union.
It's clear that businesses are facing difficulties related to the new economic arrangements with the EU. Though the trade deal, which came into force at the start of the year, means there are no tariffs on goods exported or quotas on the amount sold, businesses are facing additional costs related to more form-filling and customs checks.