Bank of England expects slower recovery from coronavirus woes

BoE has decided to keep its key interest rate at just 0.1 per cent and make no changes to its huge bond-buying programme

The Bank of England (BoE) said Britain’s economy would probably take longer to get back to its pre-pandemic size than it previously thought, but it was still weighing up the risks of cutting interest rates below zero to jump-start growth.

As it announced unanimous votes by its policymakers to keep its key interest rate at just 0.1% and make no changes to its huge bond-buying programme, the BoE said the economy would not recover its pre-pandemic size until the end of 2021.

In May, it had said it thought it might get back to its pre-crisis size during the second half of 2021.

“There are some very hard yards, to borrow a rugby phrase, to come. And frankly, we are ready to act, should that be needed,” Bank of England Governor Andrew Bailey told reporters.

On negative rates, Bailey said: “They are part of our toolbox. But at the moment we do not have a plan to use them.”

The BoE’s protections for 2020 are less grim than in May. Unemployment is expected to peak at 7.5% at the end of this year, almost double the most recent rate but lower than the BoE’s previous estimate of just under 10%.

The overall economy now looks on course for a 9.5% drop this year. That would be the worst performance in 99 years but less severe than a 14% plunge in the BoE’s May scenario, which would have been the worst in more than three centuries.