Bank of England holds interest rates at 0.1%

The Bank of England signalled today that it is ready to pump yet more stimulus into the UK economy as fears grow about rising unemployment and a possible no-deal Brexit.

While rates were held at 0.1% as expected, the Bank’s Monetary Policy Committee notes that the outlook is “unusually uncertain”.

Today’s report said: “The MPC’s central projections in the August Monetary Policy Report assumed that the direct impact of Covid-19 on the economy would dissipate gradually. They were also conditioned on the assumption of an immediate, orderly move to a comprehensive free trade agreement with the European Union on 1 January 2021.”

It adds: “The recent increases in Covid-19 cases in some parts of the world, including the United Kingdom, have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year. As in the August Report, there remains a risk of a more persistent period of elevated unemployment than in the central projection.”

The BoE will keep interest rates at the present a record low as it works through a £770 billion bond buying programme.

It has enough firepower to keep buying bonds until the end of 2020, so investors are expecting only a signal of intent to do more at the end of its September meeting.

The central bank added: “The path of growth and inflation will depend on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom.

“Recent domestic economic data have been a little stronger than the committee expected at the time of the August Report, although, given the risks, it is unclear how informative they are about how the economy will perform further out.

“The recent increases in Covid-19 cases in some parts of the world, including the United Kingdom, have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year.”

Jon Hudson, UK equities investment manager at Premier Miton, said: “As expected, the MPC has kept policy on hold. The economic recovery has so far exceeded the Bank’s earlier projections but storm clouds are gathering with new social restrictions in place, the furlough scheme unwinding and Brexit rearing its head again. With inflation well below target, it’s therefore unsurprising to see the MPC hinting at further stimulus in the coming months.”

On Wednesday, the US Federal Reserve promised to keep rates near zero until inflation is on track to “moderately exceed” its 2% inflation target “for some time.”