Mounted policemen sit outside the Royal Exchange and Bank of England in London on June 17, 2020.
AKMEN TOLGA | AFP via Getty Images
The Bank of England kept interest rates stable on Thursday and reflected the dovish tone set by the US Federal Reserve on the prospect of a future tightening of monetary policy.
The central bank’s Monetary Policy Committee voted unanimously to keep its main lending rate at 0.1% and keep its target asset purchase stock at £ 895 billion ($ 1.2 trillion).
This is at a time when bond yields around the world are rising due to expectations of rising inflation and the possibility that central banks may tighten monetary policy earlier than expected. On Wednesday, however, US Federal Reserve Chairman Jerome Powell said that the Fed does not intend to raise interest rates until 2023 and that the Bank of England adopted a similar tone on Thursday.
“The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating idle capacity and achieving the 2% inflation target in a sustainable manner,” the agency said.
The BOE has cut rates twice since the start of the pandemic by 0.75% and has implemented an unprecedented quantitative easing program, with the aim of driving the British economy towards recovery.
There has been growing speculation about a rate cut in negative territory. Last month, the BOE said that British lenders would need at least six months to prepare for a negative interest rate environment, but stressed that it was not planning to implement such a measure any time soon.
Since the last MPC meeting, official figures have confirmed that the UK economy suffered its biggest annual contraction in more than 300 years in 2020. However, initial estimates showed that GDP contracted less than expected in January, despite the country remains in the blockade.
In its budget earlier this month, the British government promised to expand its fiscal support to £ 407 billion in the short term, but mapped out a gradual reduction in measures and tightening of the public purse.
The UK has also made significant progress in implementing Covid-19 vaccines, with more than 24 million people receiving at least one vaccine.