Bank Base Rate and stimulus put on hold for now

The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain the Bank Base Rate at 0.1% and to hold any quantitative easing measures at current levels.

Any decisions have been met with a wait and see strategy as the economy is showing a less weak position than initial Bank forecasts. However, the outlook is still very uncertain, critically depending on measures taken to protect public health as the pandemic continues, and how governments, households and businesses respond.

The Bank’s projections assume the impact of coronavirus on the economy eases gradually, but with the uncertainties surrounding how the pandemic will evolve domestically and in the global market, the MPC’s medium-term projections are likely to be less accurate and informative than normal.

The Bank’s summary of the current economic position and figures are below:

• UK GDP is expected to have been over 20% lower in 2020 Q2 than in 2019 Q4.
• Higher-frequency indicators imply that spending has recovered significantly since the trough in activity in April.
• Payments data suggest that household consumption in July was less than 10% below its level at the start of the year. 
• Housing market activity appears to have returned to close to normal levels, despite signs of a tightening in credit supply for some households.
• There is less evidence available on business spending, but surveys suggest that business investment is likely to have fallen markedly in Q2 and investment intentions remain very weak.
• In the near term, the unemployment rate is projected to rise materially, to around 7½% by the end of the year, consistent with a material degree of spare capacity.
• Twelve-month CPI inflation increased to 0.6% in June from 0.5% in May. CPI inflation is expected to fall further below the 2% target and average around ¼% in the latter part of the year

The above lack of any inflationary pressures in the medium term would suggest changes to current policy in the next few months would not include an increase in interest rates.

In the MPC’s central projection, GDP continues to recover beyond the near term, as social distancing eases and consumer spending picks up further. Business investment also recovers, but somewhat more slowly. Unemployment declines gradually from the beginning of 2021 onwards. Activity is supported by the substantial fiscal and monetary policy actions in place.

Monetary Policy Report chart slides and data – August 2020 (ZIP 4.5MB)

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