The Bank of England has said it expects the economy to recover strongly this year as coronavirus restrictions are lifted but warned that the outlook remains “unusually uncertain”.
Announcing that it would keep its main interest rate on hold at a record low of 0.1 per cent, the Bank said the roadmap for re-opening may mean a “slightly stronger outlook” for spending growth, however the economy remains 10 per cent below its pre-pandemic level.
All nine members of the Bank’s Monetary Policy Committee voted not to change rates or add to the £895m money-printing programme.
The Bank highlighted reasons for optimism including the extension of the furlough scheme which means unemployment will rise less than the MPC had forecast in February.
It cautioned that the outlook for supply and demand remains unusually uncertain with an economic rebound dependent on continued progress in suppressing the pandemic.
Inflation remains well below the Bank’s 2 per cent target rate at 0.7 per cent but is expected to rise quickly in the spring, due in part to recent increases in energy prices.
The Bank said: “The MPC will continue to monitor the situation closely. If the outlook for inflation weakens, the committee stands ready to take whatever additional action is necessary to achieve its remit.
“The committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2 per cent inflation target sustainably.”
The Bank’s latest assessment comes as economic indicators show signs of recovery with online job adverts hitting their highest level in a year.
On 12 March 2021, the number of online job adverts listed on Adzuna reached 93 per cent of its average level in February 2020, the Office for National Statistics reported.
Bank of England governor Andrew Bailey said this week that he believed the economy would return to its pre-Covid level of output by the end of the year.
Gurpreet Gill, a strategist at Goldman Sachs Asset Management, said: “Critically, there is no playbook for the post-pandemic 21st century consumer. Over the coming months, the UK and indeed global outlook will, to a large extent, rest contingent on how societies emerge from the hibernation-like state of social restrictions – whether it’s a roar back into the twenties, or a more cautious emergence from the lockdown chrysalis.
“Unsurprisingly, today’s commentary on the outlook was cautiously upbeat, with the central bank noting that there is a “material degree of spare capacity”. As expected, the statement did not directly address the recent rise in bond yields.