By Samuel Indyk
Investing.com – The Bank of England’s Monetary Policy Committee voted unanimously to kept interest rates unchanged on Thursday. The MPC also kept the size of their QE programme unchanged at £875bln in a decision that was inline with market expectations.
On negative interest rates, the Central Bank said they do not intend to signal that negative rates were coming. In the short-term it looks unlikely that negative interest rate policy will be announced by the central bank. However, they have requested that banks should start preparations for negative interest rates, if it was needed in the future.
The pound strengthened after the announcement with GBP/USD paring losses from earlier in the day and EUR/GBP dropping below 0.88. UK government bond yields rose with the United Kingdom 10-Year up 3 basis points.
Economic Forecasts
The central bank took an axe to their 2021 growth forecast, lowering full year GDP estimate from 7% to 5% amid an expected slump in Q1. The Bank expects GDP to fall 4% in the first quarter due to the tighter restrictions to help contain the spread of Covid-19.
It is worth noting, the Bank of England say the outlook for the economy remains highly uncertain. Their assumption is that Covid restrictions in effect in the UK remain in place throughout the first quarter of the year.
Brexit
On the new trading arrangement with the EU, the Bank said the economic impact of the deal is expected to be very similar to the assumptions made in November 2020 and earlier monetary policy reports. The report goes on to say that the adjustments to the introduction of the new trading arrangements is expected to weigh on trade and activity in early 2021.
The Governor of the Bank of England is scheduled to hold a press conference at 13:00GMT. Watch the press conference live here.