BoE’s base interest rate stays at 0.1%

The Bank of England (BoE) has confirmed that its base interest rate is to remain at 0.1%.

The Monetary Policy Committee (MPC) at the BoE, which sets monetary policy to meet the 2% inflation target, voted unanimously to keep the base rate at its historic low.

UK GDP is expected to have fallen by around 1.5% in the first quarter of 2021, which is less weak than the BoE was anticipating in its February Report.

This is down to new COVID cases in the UK continuing to fall, the vaccination programme proceeding apace, and restrictions on economic activity are easing. The BoE is also expecting GDP to “rise sharply” in the second quarter to reflect these developments, although activity in the quarter is likely to remain on average around 5% below its level in 2019 Q4.

The Bank also stated that the outlook for the economy, and particularly the relative movement in demand and supply, remains “uncertain”, as it continues to depend on the evolution of the pandemic.

Commenting on the latest base rate decision, HYCM chief currency analyst, Giles Coghlan, said: “On the face of it, today’s MPC meeting was unremarkable. Interest rates and asset purchases both remain the same, and these were the key headlines that investors and traders will have been watching.
“However, looking at the minutes, it is important to note that the BoE has adopted a more optimistic outlook for the UK economy. They are expecting the country's GDP to fall by less than forecast back in February, with the low COVID case numbers and success of the vaccine rollout clearly playing a big part in this.

“Crucially, there is an expectation that the estimated £150bn of savings that consumers have accumulated over the past 14 months or so will steadily be released into the economy in the months ahead.”

Killik & Co associate investment director, Rachel Winter, added: “In the upcoming months, the BoE will be hoping that people loosen their grip on the purse strings and start spending their lockdown savings.
“Government intervention in borrowing such as the mortgage guarantee and breathing space schemes should start to ease tentative borrowers’ concerns. Already it seems as though this strategy is building momentum as recent BoE figures show that mortgage borrowing reached record highs and UK households have repaid more bank loans than they have taken out.
“However, despite this, many will have grimaced at the thought of continual low rates. Cash could be sitting idly in saving accounts for a while, so staunch savers and those nearing pension age should start to look for alternative investments to reap more satisfactory rewards.”

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