BoE keeps rates steady and dampens expectations of imminent change
The Bank of England has held interest rates at 0.1 per cent and its bond-buying programme at £895bn, thereby diminishing expectations of changes in the immediate future, with the next announcement not until 6 May.
The BoE’s Monetary Policy Committee (MPC) voted unanimously to keep rates at record-low levels.
Analysts expected today’s decisions to be virtually firework-free, with a heavy focus expected to be on whether the bank signals its intention to keep rates at rock-bottom levels for the foreseeable future.
The BoE said the outlook for the economy remained unusually uncertain and continues to depend on the evolution of the pandemic, the measures taken to protect public health, and how households, businesses and financial markets respond to these developments.
If the outlook for inflation weakens, the BoE said, the MPC stands ready to “take whatever additional action is necessary to achieve its remit.”
However, it said the MPC 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.”
Naeem Aslam, chief market analyst at Ava Trade, said: “The boring decision came out of the BoE which didn’t move any muscle when it comes to its monetary policy but there is plenty of action in the equity markets where traders are still digesting the Fed decision.
“The BOE has struck the same dovish tone about its monetary policy and there is no date in calendar apart from the fact some good progress on inflation.”
Quilter Investors portfolio manager Paul Craig added: “The Bank of England is clearly following in the Federal Reserve’s footsteps with regard to tightening or tapering off monetary support. It is still too early to think about these steps and the evolution of the reopening is key. As such, the BoE will be very much focused on the vaccine rollout and continue with the status quo.
“This should result in a tolerated overshoot on inflation. But what a difference a few weeks make as the market has shifted from fretting about negative interest rates at the last meeting, to now discussing when we are likely to see rate hikes.
“’Real’ unemployment is running high just now and the temporary support being withdrawn later this year could result in the scarring being deeper than feared. However, the impact still remains uncertain. The key message Andrew Bailey will be wanting to get across to households is be confident to spend those savings.”
Dovish fed
The likely cautious outcome from today’s meeting follows a similarly dovish update from the Fed last night.
The Federal Reserve kept its rates on hold but upgraded its economic predictions, projecting the US economy would grow by 6.5 per cent in 2021, up from the 4.2 per cent forecast issued three months ago.
“The US’s economic recovery is far stronger than that of the UK and as stated above, the Fed is not anywhere near tightening monetary policy so it is safe to say the BoE will be not be looking to adjust their stance in the foreseeable future,” said David Madden, market analyst at CMC Markets UK.
Sterling edged higher against the euro ahead of a Bank of England meeting, but fell in around 0.2 per cent in the immediate minutes after rates decision.
The FTSE 100 fell 0.2 per cent this morning, with consumer staples stocks including Unilever, Diageo and Reckitt Benckiser Group shedding between 0.5 and 1.1 per cent.