LONDON — The Bank of England will keep interest rates on hold and has grown more optimistic about the economic recovery in the U.K. this year as a result of the rapid rollout of coronavirus vaccines.
In a prepared statement today, the nine-member Monetary Policy Committee said it will maintain the bank’s main interest rate at 0.1%. The unanimous and widely anticipated decision means that interest rates will remain at the lowest level in the bank’s 327-year history.
Alongside its decision, the bank’s rate-setting panel said growth is likely to be greater than it previously thought in the coming quarters as consumers ramp up their spending following the easing of lockdown restrictions, largely due to the rapid rollout of coronavirus vaccines.
The bank is now projecting U.K. economic growth of 7.25% in 2021, up from its previous forecast of 5%. Because it anticipates growth being brought forward, it has revised down its forecasts for next year. It is now expects 5.75% growth in 2022, instead of the 7.25% previously predicted.
The growth rates anticipated should mean that the British economy makes up much of the ground that it lost during the pandemic, which saw widespread restrictions on economic activity. In 2020, the British economy contracted by around 10%, one of the developed world’s worst outcomes.
Though the U.K. had Europe’s highest virus-related death toll at more than 127,500, its vaccine rollout has been successful compared with its European peers. By Wednesday, around 52% of the British population had received at least one dose of vaccine with around a quarter getting two.
“A fast and effective vaccine rollout meant that many individuals might feel safe to return to pre-COVID spending behaviour, supplemented by considerable pent-up demand from the earlier periods of restrictions,” the committee said, according to minutes of their meeting.
The U.K. is in the midst of lifting lockdown restrictions and there are hopes that many of the social curbs could be gone by the summer.
As a result, the bank expects growth to really start rebounding from the second quarter of 2021, although activity will remain close to 5%, below its level before the pandemic struck in the fourth quarter of 2019.
“GDP is expected to recover strongly to pre-COVID levels over the remainder of this year in the absence of most restrictions on domestic economic activity,” the committee said.
But it warned of “downside risks to the economic outlook” from a potential resurgence of the virus and the possibility that new variants may be resistant to the vaccine.