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United Kingdom Monetary Policy June 2021

United Kingdom: BoE keeps rates and total stock of asset purchases unchanged in June

At its meeting ending on 22 June, the Bank of England (BoE) maintained the bank rate at the record low of 0.10%, where it has been 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.

On one hand, further monetary easing was not warranted, as the economy is now expected to perform better than the Bank estimated earlier in Q2, and inflation is currently slightly above the 2.0% target. On the other hand, it was premature to raise rates or reduce the total stock of asset purchases, due to still-elevated uncertainty linked to the virus. Moreover, inflation expectations remain well-anchored, and the Bank sees the current inflation overshoot as temporary, providing the leeway to take a wait-and-see approach.

In its communiqué, the BoE reiterated that it would only tighten rates on “clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”. The vast majority of our panelists see the bank rate at 0.10% until 2023, although a few now pencil in hikes next year. The next policy announcement will be on 5 August.

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