The Bank of England (BoE) decided to keep interest rates on Thursday and at the same time issued a dovish -toned statement on the prospects of tightening monetary policy in line with the tone uttered by the Fed.
The central bank’s Monetary Policy Committee unanimously voted to keep the key lending rate at 0.1% and maintain total asset purchases at a total level of £ 895 billion ($ 1.2 trillion).
The move came in the wake of bond yields around the world soaring higher driven by expectations of rising inflation and the possibility that the central bank will tighten monetary policy faster than expected. Earlier this Thursday morning, the chairman of the U.S. Federal Reserve. Jerome Powell has stated that the Fed has no intention of raising interest rates until 2023 and the Bank of England has a similar tone.
The BOE has lowered interest rates twice since the pandemic, starting from 0.75% and implemented unprecedented quantitative easing. At the same time, there has been hovering speculation that the BoE will lower interest rates below negative levels. However, last month the BOE stated that banks need at least six months to deal with negative interest rates.
Since the last meeting of the MPC, official figures confirm that the UK economy is experiencing its biggest annual contraction in more than 300 years in 2020. Nevertheless, the UK economy is expected to recover.
The UK has so far shown significant progress in the implementation of Covid-19 vaccination, with more than 24 million people having received at least one dose of the vaccine. The GBP depreciated following the release of this report with a depreciation of 0.23% against the US dollar.
