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Bank of England to slow pace of asset purchases, interest rate unchanged

EconomyMay 06, 2021 12:29
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© Reuters.

By Samuel Indyk

Investing.com – The Bank of England decided on Thursday to slow the pace of asset purchases under their QE programme to £3.441bln per week from the current pace of £4.4bln per week.

The central bank affirmed that the decision to slow the pace of asset purchases was an operational decision and should not be interpreted as a change in the stance of monetary policy.

"As measured by the target stock of purchased assets, that stance remained unchanged," the Bank of England said in a market notice published on their website.

Alongside the decision, the central bank also voted unanimously to keep the bank rate unchanged at a record low of 0.1%. The Monetary Policy Committee voted 8-1 to continue with its existing programme of UK government bond purchases, maintaining the target for the stock of these government bond purchases at £875 billion.

Andy Haldane, the Bank of England's chief economist, decided to vote against the QE plan, preferring to cut the size of gilt purchases by £50bln to £825bln in total. Of note, Haldane will step down from his role as chief economist after the central bank's June meeting.

Monetary policy stance

The Monetary Policy Committee said they will continue to monitor the situation closely and take "whatever action is necessary" to achieve their remit.

"The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably," the central bank said in its monetary policy report. "At this meeting, the Committee judged that the existing stance of monetary policy remained appropriate."

With the slowdown in asset purchases underway, ING analysts say the next questions is how, and when, the Bank of England will enter a formal tightening cycle.

"For now, the Bank is taking a leaf out of the Federal Reserve’s book, offering a fairly vague signal that tightening won’t come until the recovery has made significant progress," ING note in an emailed report. "However in the not-too-distant-future, we expect the Bank will offer further details on how it might reduce its gilt holdings alongside future rate hikes."

Bank of England lifts 2021 growth forecast

Unsurprising, the central bank lifted its 2021 GDP growth forecast following an impressive vaccination programme that should see the economy recover faster than previously expected. The Bank of England {{0|now}} sees 2021 GDP growth of 7.25% from 5.00% previously.

The inflation forecast for 2021 has also been lifted to 2.5% from 2.0% previously, however, CPI is expected to fall back towards the 2.0% target next year.

Bank of England to slow pace of asset purchases, interest rate unchanged
 

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Comments (3)
My Great
My Great May 06, 2021 16:28
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Good news 👌🏻
eBrayson Tv
eBrayson Tv May 06, 2021 12:36
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i want to know gbp would have capacity for bullish due to this news or will bearish??
Rahim Ahmad
Rahim Ahmad May 06, 2021 12:36
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bearish movement
Adegbolade Adebote
Adegbolade Adebote May 06, 2021 12:06
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hmmm, and so it begins
Ali Reza Suchi
Ali Reza Suchi May 06, 2021 12:06
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Began what can you explain?
Sanele Dlamini
Sanele Dlamini May 06, 2021 12:06
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yeah explain
 
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