— Base Rate Remains at Record-Low 0.1%
By Laurie Laird
LONDON (MaceNews) – The Bank of England will decrease the pace of its emergency quantitative easing program, noting that the UK has not suffered as much as feared during the economic shutdown implemented in late March.
“Recent payments ant other high frequency data suggested that consumer spending could already have reached the level that [previous forecasts] suggested would be reached in the third quarter,” according to minutes of the Bank’s Monetary Policy Committee held on Wednesday. “There were also signs of a pickup in activity elsewhere in the economy.”
UK GDP plunged by a cumulative 25% in March and April. Bank of England staff now believe the economy will contract by 20% between the final quarter of 2019 and the second quarter of this year, better than the 27% forecast last month.
The MPC did agree to increase its asset purchase program by £100 billion, taking the total stock of asset purchases to £745 billion. The increase was largely in line with expectations, although some analysts predicted a bigger increase of £150 billion. The Bank’s chief economist, Andy Haldane, dissented, favoring no change in the program.
“With liquidity conditions having stabilized, purchases could not be conducted at a slower pace than during the earlier period of dysfunction,” according to the minutes.
The committee unanimously agreed to maintain the base rate at a record-low of 0.1%, after two emergency cuts in March. However, the Bank’s somewhat-brighter economic outlook may silence speculation of a sub-zero interest rates in the UK. Over the past six weeks, a number of MPC members have refused to rule out a reduction into negative territory in the wake of the Covid shock.
But better-then-expected recent data do not guarantee a smooth recovery, with the MPC warning of a long-term scarring to the UK economy. “There is a risk of higher and more persistent unemployment in the United Kingdom … [and] a degree of precautiounary behaviour by households and business is likely to persist,” according to the minutes.