BoE trims outlook, keeps interest rate and stimulus unchanged

The central bank says Britain’s economy would probably shrink by 4% in the first three months of 2021, but it is expected to recover rapidly towards pre-COVID levels over the year

The Bank of England left its key interest rate and stimulus unchanged on Thursday, but slashed its 2021 growth forecast despite vaccines rollouts.

BoE policymakers voted to keep its main borrowing cost at a record-low 0.1 per cent following their first rates meeting since Britain’s divorce from the European Union at the start of January, The central bank also cut its 2021 growth forecast to 5.0 per cent from 7.25 per cent.

It said COVID-19 vaccination programmes around the world “has improved the economic outlook”.

“Nevertheless, recent UK and global activity has been affected by an increase in Covid cases, including from newly identified strains of the virus, and the associated reimposition of restrictions,” the BoE added in a statement.

It meanwhile signalled that Britain would likely avoid a so-called double-dip recession with marginal growth expected in the final three months of last year.

And again it hinted at the possibility of negative interest rates, saying it was “appropriate” to start preparations for adding such action to its monetary policy toolkit.

A negative interest rate would likely see retail banks further cutting their own borrowing costs, adding more pain to savers while boosting borrowers.

The BoE on Thursday added that the economy was about 8.0 per cent smaller in the fourth quarter than prior to the start of the pandemic in early 2020.