BoE maintains base interest rate at 0.1%

The Bank of England (BoE) has confirmed it is to still keep the base interest rate at 0.1%.

The base rate has stayed at 0.1% since March last year when it was cut by 15 basis points to stabilise the economy amid the first wave of COVID-19.

In the latest meeting of the BoE’s Monetary Policy Committee (MPC), which sets monetary policy to meet the 2% inflation target, the Committee judged that the existing stance of monetary policy remains “appropriate” and voted unanimously to maintain the bank rate at its historic low of 0.1%.

The Bank reported that UK GDP rose by 5% in Q2, leaving it around 4% below its pre-pandemic level, and slightly stronger than expected in the May Report. After the MPC’s previous meeting, the number of coronavirus cases was continuing to rise but has subsequently shown signs of falling back.

GDP is expected to grow by around 3% in Q3, which the BoE stated is weaker than it expected in its May Report, with a small negative impact from recent developments in the pandemic. UK GDP is projected to recover further over the remainder of the year, reaching its pre-pandemic level in 2021 Q4, with demand growth boosted by a waning impact from COVID. 

Commenting on the BoE’s latest decision, Cyborg Finance CTO, Adam Hosker, said: “The inflation we have currently is the economic equivalent of long-COVID. It has not been caused by an overheating economy but by depressed output. It will settle down once the economy is back to its original output capacity.

“Raising interest rates will only hinder our economic recovery and it's highly unlikely for some time yet.”

Killik & Co associate investment director, Rachel Winter, added: “Given the speed with which events have outstripped projections, and with some economists predicting inflation could peak around 4% and linger above target, the central bank will need to monitor prices very closely over the coming months.

“Savers are the losers in this low interest rate environment, with the value of cash being eroded by inflation. While keeping a rainy-day fund in the bank is highly recommended, those with high levels of cash could consider taking more risk and investing in the stock market in order to generate above-inflation returns.”

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