Bank of England has set its new growth target at 7.25% for 2021
The Bank of England confirmed on Thursday that it has upgraded its growth forecast for the UK while suggesting it will not increase interest rates in the near future.
This is despite the possibility of inflation rearing its head.
The most recent meeting of the central bank’s Monetary Policy Committee left interest rates unchanged at their coronavirus pandemic low of 0.1% in line with analysts’ expectations.
The Bank of England also kept its quantitative easing programme on hold at £895bn.
Its Monetary Policy Report stated that thanks to the vaccine roll-out, the UK is recovering from the biggest drop in economic output in over 300 years quicker than initial expectations.
The central bank has set its new growth target at 7.25% for 2021, up by 2.25% from its previous expectations, while output is down by 1.5% during the first quarter.
The report said: “GDP (gross domestic product) is expected to rise sharply in 2021 second quarter, although activity in that quarter is likely to remain on average around 5% below its level 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.”
Giles Coghlan, Chief Currency Analyst at HYCM, said: “On the face of it, today’s MPC meeting was unremarkable. Interest rates and asset purchases both remain the same, and these were the key headlines that investors and traders will have been watching.”
“However, looking at the minutes, it is important to note that the BoE has adopted a more optimistic outlook for the UK economy. They are expecting the country’s GDP to fall by less than forecast back in February, with the low Covid case numbers and success of the vaccine rollout clearly playing a big part in this. Crucially, there is an expectation that the estimated £150 billion of savings that consumers have accumulated over the past 14 months or so will steadily be released into the economy in the months ahead.”
“Uncertainty is dissipating, and we are seeing the GBP and FTSE 100 go on initial mild bullish runs immediately after the decision. In the medium-term, as lockdown measures ease, we could expect this trend to continue. Of course, the positive performance of GBP will be welcomed by holidaymakers; as many Britons prepare to travel abroad again later this year, the improved strength of sterling against the likes of the USD and euro will certainly help consumers,” Coghlan added.
