The Bank of England’s monetary policy committee (MPC) has unanimously voted to keep the base rate at 0.1% as negative interest rates loom.
In the clearest sign yet that a negative interest rate is imminent the minutes of Thursday’s policy meeting revealed that the Bank will begin “structured engagement” with regulators on how such a move could be implemented effectively.
Furthermore, the MPC noted that CPI inflation fell from 1% to 0.2% in the 12 months to August 2020, as a result of the government’s Eat Out to Help Out scheme and the cut in VAT for hospitality, holiday accommodation and attractions.
CPI inflation is predicted to remain below 1% until the beginning of 2021, however, this is higher than expected at the time of the August Report.
Looking ahead, for 2020 Q3, BoE expects GDP to be around 7% below its 2019 Q4 level, which is less than what was predicted in the August Report.
The MPC highlighted that the “outlook for the economy remains unusually uncertain”. The committee’s projections in the August Report largely assumed that the direct impact of COVID-19 on the economy would dissipate gradually.
Frances Haque, UK chief economist at Satander, said: “The MPC’s decision to leave Bank Rate unchanged at 0.1% was expected this month, along with the decision to keep the amount of quantitative easing undertaken by the Bank of England unchanged.
“However, although the economy has started to recover, there remains uncertainty caused by the on-going issues around trade negotiations with the EU as well as the possibility of more stringent measures being imposed if COVID-19 cases start to increase rapidly.
“As a result, there continues to be a significant possibility of further rate cuts and more quantitative easing to help support the economy as we move through the tail end of 2020.”