The Monetary Policy Committee (MPC) voted unanimously that it would leave its benchmark rate at 0.1 per cent whilst maintaining its target for total stock of asset purchases under the quantitative easing (QE) program at £745 billion, The Bank of England (BOE) announced in September. To summarize BoE’s announcements, at one of its meetings ending on the 16th of September 2020, the MPC‘s vote to “the BOE to continue and maintain its existing programs of UK government bond and sterling non-financial investment grade corporate bond purchases, financed by the insurance of the central bank reserves, maintaining the target for the total stock of these purchases at £745 billion”. The committee issued warning statements that the outlook for the economy remains “unusually uncertain”, indicating the direct impact of COVID-19 on the economic growth and the shift to a comprehensive free-trade agreement with the European union (EU) on January 1, 2021, setting as the key factors for the coming months.
The Bank of England’s Monetary Policy committee set a policy to meet its 2 per cent inflation target whilst sustaining growth and employment. Since the inflammation has fallen from 0.1 per cent in July to 0.2 per cent in August. The UK Government’s Eat Out to Help out Scheme and the cut in the Value Added Tax (VAT) for hospitality, holiday accommodation and attractions weighing heavily on prices, a concern was raised that the MPC’s inflation target would not be met for some time. And just as predicted the Bank’s inflation now will be around 2 per cent in two years’ time, on a condition of the prevailing market yields. Further predictions of the inflammation remaining below 1 per cent until the very end of the 2020. A promoted growth pressure for the rate setting committee to adopt an even more amicable stance. The low inflation rate points promoted the exchange of open letters between Andrew Bailey, the BoE governor, and Rishi Sunak, the Chancellor of the Exchequer, as published by the Bank with its monetary-policy announcement.
After that being made Bank of England acknowledged the fact that the UK economy appeared to be in a stronger position than it was a month ago. “Recent domestic economic data have been a little stronger than the Committee expected at the time of the August Report, although, given the risks, it is unclear how informative they are about how the economy will perform further out,” observed the bank after adding the recent Covid-19 cases might still have the potential to keep economic activities might be subdued for more time than expected usually which was not the case earlier. And also as warned by the bank there remains a risk of a more persistent period of elevated unemployment than in the central projection. And with this prediction there can be potential loss of employment. The unemployment rate is expected to reach 7.5 percent. The furlough scheme was preventing millions of workers from being laid off and it ending in the year end, there will be a restrictive economic activity and further monetary loosening could be well implemented over the coming year.
The BOE released a statement, “The path of growth and inflation will depend on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom. It will also depend on the responses of households, businesses and financial markets to these developments.”
For the quarter end of 2020, the BOE expected a gross domestic product (GDP) to be around 7 percent below its fourth-quarter-2019 level, which was stronger than the previously made interpretations.