By PAN PYLAS, Associated Press
LONDON (AP) – The Bank of England kept its main interest rate at a record low of 0.1% on Thursday, even as it warned inflationary pressures were mounting as the UK economy rebounded from the lifting of many coronavirus lockdown restrictions.
In a prepared statement accompanying its decision, the bank’s monetary policy committee voted unanimously to keep lending rates unchanged. The committee also kept its stimulus package unchanged, although one member voted to reduce the scale of support given the improving economic outlook and mounting cost and price pressures.
These two decisions had been widely anticipated in the financial markets.
The committee has had a relatively optimistic tone on the UK economy since its last meeting in early May. He said bank staff had revised their expectations for second-quarter growth upward by around 1.5 percentage points since then as restrictions on economic activity eased. The bank now expects production in June to be only about 2.5% below its fourth quarter 2019 level, just before the pandemic hits.
He said the recovery was most pronounced in consumer services where restrictions were relaxed in April.
Restrictions across the UK have been lifted in recent months following a month-long winter lockdown and rapid vaccine rollout. Much of the UK economy, which shrank by around 10% in 2020, has reopened although an array of social distancing restrictions remain in place.
However, the latest easing slated for England which was due to start this week has been delayed by a month due to a resurgence of the virus, with it being the most dangerous delta variant. Now the UK government hopes to lift all remaining restrictions on social contact on July 19. The other nations of the UK – Scotland, Wales and Northern Ireland – have emerged from lockdown broadly in the same way as England.
The committee said that “the direct economic implications of delaying the final stages of easing COVID restrictions would likely be relatively small compared to the impact of the reopenings of retail and hospitality activities that had already taken place. produced “.
The committee also appeared to be quite optimistic about the recent spike in inflation. Like others, the UK has seen price pressures increase in recent months as the global economy rebounds.
Inflation in the UK rose in May to 2.1%, above the bank’s target of 2%. The committee said it could exceed 3% for a temporary period, but that the direct impact of rising commodity prices “will be transient”.
He said he “does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating slack capacity and achieving sustainable achievement. of the 2% inflation target “.
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