The BOE voted 9-0 to leave the Bank rate unchanged at 0.1%. It will also continue to buy up to 875B pound of UK government bonds and 20B pound of corporate debts. While cautioning that the economic outlook remained highly uncertain, policymakers acknowledged the recent upbeat data, smooth vaccination progress and the latest budget package.
Policymakers noted that the better than expected GDP data in January was mainly driven by developments in public sector output. For the coming quarter, the central bank suggested that the easing of restrictive measures could lead to “a slightly stronger outlook for consumption growth” in 2Q21 than previously anticipated.
Successful vaccination rollout and the budget spending are the key reasons for a more upbeat outlook. The central bank acknowledged in the statement that “the rates of Covid infections and hospitalizations have fallen markedly across the United Kingdom and the vaccination program is proceeding at a rapid pace”. It added that plans for the easing of restrictions on activity have been announced and envisage that restrictions could be lifted somewhat more rapidly than was assumed in the February Report”. Policymakers also noted that “the extension of the Coronavirus Job Retention Scheme and other measures to support the economy in the near term which had not been reflected in the February Report”.
On the monetary policy outlook, the central bank noted that it “does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”. Similar to the Fed, the BOE viewed the recent rise in bond yields as a reflection of improved economic confidence. The BOE did not signal the future pace of QE purchases. We expect it would announce to slow the pace at the May meeting.B