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The Bank of England has warned that stricter restrictions than it anticipated to control the coronavirus will affect the UK’s economic recovery next year.
The minutes of the latest monetary policy committee meeting, which resulted in a unanimous vote to keep interest rates at their crisis low of 0.1%, showed concern that post-closing measures would inflict more damage than they would. the Bank feared in November.
Those forecasts, released last month when the Bank stepped up its stimulus to buy bonds, predicted a maximum unemployment rate of 7.75% for the second quarter of next year.
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A drop of up to 11% in gross domestic product (GDP) during 2020 was expected to be crowned by a fall imposed by the blockade in the last current quarter.
However, the Bank’s expectation was that it would be followed by growth of 2.1% in the first quarter of 2021, avoiding a double dip recession.
He said that while vaccine development is likely to “reduce downside risks to the economic outlook,” he added that “recent global activity has been affected by the rise in COVID-19 cases and associated reimposition of restrictions “.
It published its update after the government announced that more swaths of England would enter the most difficult areas. Level 3 curbs in the days to come.
The Bank, which has also voiced its fears of a possible Brexit impact early next year, kept its gunpowder dry in policy terms as the country awaits clarification on how the UK will trade with the European Union as of 1 January, when the transition period ends.
A section of their meeting summary read: “The outlook for the economy remains unusually uncertain.
“It depends on the evolution of the pandemic and the measures taken to protect public health, as well as the nature and transition to new trade agreements between the European Union and the United Kingdom.
“It will also depend on the responses of households, businesses and financial markets to these developments.”
The Bank said it was prepared to tolerate inflation, currently at 0.3%, above its 2% target if a no-deal Brexit result caused the pound to fall in value.
It is currently trading at its highest against the US dollar in two and a half years, at $ 1.36, with renewed hopes that a free trade agreement will be reached in Brussels.
The Bank said: “Compared to previous periods during which non-negotiated Brexit outcomes had been possible, the economy was starting from a weaker position with greater available capacity, increasing the committee’s tolerance for a temporary overshoot of the inflation”.
Hinesh Patel, a portfolio manager at Quilter Investors, said of the MPC’s last scheduled meeting of the year: “Just when the Federal Reserve awaits news of a stimulus package, the Bank of England is stuck waiting for the Brexit negotiations to be resolved and As such, they have chosen to keep more stimuli on hold.
“The Bank of England appears to be paralyzed by the outcome of a Brexit deal, but is still conscious as it seeks to adapt where it can.”
