United Kingdom: BoE keeps rates and asset purchases unchanged in March; strikes more upbeat tone
At its meeting ending on 17 March, the Bank of England (BoE) maintained the bank rate at a record low of 0.10%, where it has remained since March 2020. Moreover, the Bank agreed to keep the total stock of investment-grade corporate bonds and UK government bonds at GBP 895 billion.
The Bank highlighted that both external and domestic economic conditions had been stronger than anticipated, and mentioned that the additional fiscal stimulus in the 2021 budget and the rapid pace of domestic vaccinations bode well for the domestic outlook. Moreover, the Bank seemed sanguine on the recent rise in bond yields, despite this potentially leading to a tightening of financial conditions, seeing higher yields as a sign of improved economic dynamics. As such, further monetary easing was not required. On the other hand, with inflation still substantially below target and the UK subject to hefty Covid-19 restrictions, the Bank considered it premature to begin reducing monetary stimulus.
In its communiqué, the Bank reiterated the previous meeting’s forward guidance that it “stands ready to take whatever additional action is necessary to achieve its remit” of 2% inflation. While this implies further easing is possible, it will likely not be necessary given the economy is on the mend and inflation is expected to move swiftly back towards the target in the coming quarters. Indeed, almost all panelists see rates unchanged through the end of the year. The next meeting ends on 6 May.
According to analysts at ING:
“The Bank of England has signalled it remains relaxed about the recent rise in gilt yields and rate hike expectations. That tells us we’re unlikely to get negative rates in 2021 and instead there will be a growing focus on tightening, though this process is unlikely to start before 2023.”