BoE votes to still keep base interest rate at 0.1%

The Bank of England (BoE) has announced it is again keeping its base bank rate at 0.1%.

The base rate has been kept at 0.1% since March last year when it was cut by 15 basis points to stabilise the economy amid the first wave of the coronavirus outbreak.

The Monetary Policy Committee (MPC) at the BoE, which sets monetary policy to meet the 2% inflation target, voted unanimously to maintain the base interest rate at its lowest ever level.

In the MPC’s central projection in its May Monetary Policy Report, the BoE stated that the UK GDP was expected to “recover strongly” over 2021, to pre-pandemic levels. The Bank is also projecting CPI inflation to to rise temporarily above the 2% target, owing mainly to developments in energy prices.

Commenting on the latest decision from the BoE, Killik & Co associate investment director, Rachel Winter, said: “The success of our COVID-19 vaccination programme combined with the reopening of our economy has led to a surge in consumer activity, which in turn has caused a spike in inflation to 2.1%.

“However, the BoE has not yet felt the need to apply the brakes to prevent the economy from overheating, and today it has left interest rates untouched.

“Borrowers will be relieved, including the UK government which borrowed a further £24bn in May. On the other hand, savers will no doubt be disappointed about continuing low returns on cash, as will retail banks who must continue to charge lower rates for loans and mortgages.

“Given that the government is reducing furlough scheme contributions next month and real wages have fallen, it is expected that inflation will stabilise over the coming months without the need for interest rates rises in the short-term.”

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