The Bank of England has kept its interest rate at 0.1 per cent and decided against adding to its £895m quantitative easing plan.
Its monetary policy committee (MPC) voted to maintain the institution’s previous course and said the country’s coronavirus vaccine rollout was helping the economy recover.
The Bank’s 2-per-cent target for inflation would likely be hit this year, it said. Currently the figure sits at 0.7 per cent.
In its report the MPC said the estimated gross domestic product (GDP) decline of 1.5 per cent in the first quarter was less severe than expected and that the measure of economic output was likely to rise “sharply” in quarter two by about 4.25 per cent.
It also cut its forecasts for unemployment over the year.
Over the course of 2021, a rebound of 7.25 per cent is forecast, higher than previously thought. However, growith of 5.75 is now predicted in 2022, instead of the 7.25 per cent previously forecast.
The MPC report said: “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.
“Demand growth is further boosted by a decline in health risks and a fall in uncertainty, as well as announced fiscal and monetary stimulus.
“Consumer spending is also supported by households running down over the next three years around 10 per cent of their additional accumulated savings.
“After 2021, the pace of GDP growth is expected to slow as the boost from some of those factors wanes. The level of activity is higher in each quarter of the forecast than in the February projections.”
The MPC said its predictions were predicated on coronavirus restrictions being eased in line with plans set out by Westminster and the devolved governments. A potential resurgence of the virus, and the threat of new strains, could negatively affect the economy, it warned.
The coronavirus pandemic precipitated the UK’s largest drop in output for 300 years in 2020, when it plummeted by 9.8 per cent.