The Bank of England’s Monetary Policy Committee (MPC) has voted unanimously to maintain the Bank Rate at 0.1%.
The Committee voted by a majority of 7-2 for the Bank of England to continue with the programme of £200 billion of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, to take the total stock of these purchases to £645 billion.
Two members preferred to increase the target for the stock of asset purchases by an additional £100 billion at this meeting.
In a statement, the Bank said: “The unprecedented situation means that the outlook for the UK and global economies is unusually uncertain. It will depend critically on the evolution of the pandemic, and how governments, households and businesses respond to it. Recognising these uncertainties, the MPC has constructed a plausible illustrative economic scenario in the accompanying May Monetary Policy Report. This scenario is based on a set of stylised assumptions about the pandemic and the responses of governments, households and businesses, and, as usual, on the prevailing levels of asset prices and the market path for interest rates.
“While the scenario is highly conditional, it helps to illustrate the potential impact of Covid-19 on the economy and the channels through which the impact is felt. The Report also includes a number of estimates of the sensitivity of the economy to a selection of key variables, which, taken alongside the scenario, serve to illustrate the important drivers of the outlook.
“The illustrative scenario incorporates a very sharp fall in UK GDP in 2020 H1 and a substantial increase in unemployment in addition to those workers who are furloughed currently. Given the assumed path for the relaxation of social distancing measures, the fall in GDP should be temporary and activity should pick up relatively rapidly. Nonetheless, because a degree of precautionary behaviour by households and businesses is assumed to persist, the economy takes some time to recover towards its previous path.
“CPI inflation is expected to fall further below the 2% target during the second half of this year, largely reflecting the weakness of demand.”