BoE votes to keep interest rate at 0.1%

The Bank of England (BoE) has announced that the UK base interest rate will remain at 0.1%.

The Monetary Policy Committee (MPC) at the BoE voted unanimously to maintain the bank rate at its historic low, and suggested the outlook for the economy remains “unusually uncertain”.

In the Bank’s August Monetary Policy Report, central projections from the MPC assumed that the direct impact of COVID-19 on the economy would “dissipate gradually”, with UK GDP projected to continue a recovery. The Bank suggested that activity was also supported by substantial fiscal and monetary policy actions.

Having slashed the rate to 0.1% in March as the UK went into lockdown, a move which took the BoE’s interest rates to their lowest levels in history, the Bank suggested that recent increases in COVID-19 cases have the potential to “weigh further on economic activity”, but stated this would be on a “lesser scale than seen earlier in the year”.

The BoE indicated it will will continue to monitor the situation closely and said the MPC stands ready to adjust monetary policy accordingly to meet its remit. 

Commenting on the latest guidance over interest rates, Conister director, Douglas Grant, said: “Today’s announcement from the BoE is in line with industry expectations and leaves the central bank with options to provide stimulus to the economy amid the ongoing uncertainty.

“For the SME sector particularly, the shape of the recovery depends on many known unknowns with the challenges of 2019 and 2020 – Brexit and COVID-19 – bundled into one and it is vital that we continue to open new channels for distributing much needed liquidity to support the real economy.

“SMEs have shown a great deal of adaptability and resilience in the face of changing consumer behaviour and as such it is critical that economic and monetary stimulus in tandem with government schemes work in partnership with specialist lenders to continue to support the sector.”

Killik & Co associate investment director, Rachel Winter, added: “The rumours of negative interest rates continue to rumble on, but in welcome news for UK savers, they are yet to become a reality.

“The last few months have seen businesses reopen and consumer spending ticking upwards, and at this stage is seems the BoE does not see a further interest rate reduction as necessary. The Bank will also be mindful of the recent weakness in Sterling, which would likely be exacerbated by a further reduction in rates.

“However, there remains the prospect of significant job losses when the furlough scheme comes to end next month which will inevitably put further pressure on household finances, so the possibility of lower rates in future cannot be ruled out. As we have seen over the last decade, lower interest rates can have the effect of enticing more savers into the stock market as they seek to earn a return on their savings.”

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