The Bank of England kept interest rates and its £895 billion ($1.2 trillion) asset purchase program unchanged despite an improving growth outlook, as anticipated by money managers.
The central bank left policies unchanged at its meeting Wednesday, including the 0.1% interest rate, but managers highlighted a more hawkish tone amid the ongoing recovery — largely owing to the U.K.’s COVID-19 vaccination program.
“As expected, the Bank of England acknowledged improvements in the growth outlook owing to vaccinations picking up pace but kept the policy rate unchanged,” Gurpreet Gill, macro strategist, global fixed income at Goldman Sachs Asset Management, said in an emailed comment. GSAM expects rate hikes to be a “distant prospect.”
The £895 billion asset purchase program is composed of an £875 billion government bond-buying target and an additional £20 billion corporate bond program. Eight members of the bank's monetary policy committee voted in favor of keeping the £875 billion government bond purchase program unchanged, while Andrew Haldane, chief economist, voted to reduce the target of purchases to £825 billion, a document published Thursday by the Bank of England said.
The bank expects U.K. growth domestic product to revert to pre-crisis levels by the end of this year — one quarter earlier than it outlined in its February forecasts. The unemployment rate is now expected to peak at 5.4% in the third quarter of this year, down from a February forecast of almost 8%.
The bank's inflation target is 2%. It said while inflation is currently below the target, it expects the level to rise to around 2% this year. The bank also sees inflation falling below target in the next two or three years, which is under market interest-rate expectations, Silvia Dall'Angelo, senior economist at the international business of Federated Hermes, said in an emailed comment.
"In other words, the bank has pushed back against market's expectations of tightening starting towards the end of next year. The bank stressed that the outlook is still uncertain and downside risks still exist, so easy policies are here to stay until there is 'clear evidence' of a rebound. That said, today meeting feels like a far cry from the previous forecasting meeting in February, when the bank added (negative interest rates policy) to its toolbox."