Bank of England Base Rate Unchanged Again, Stays At 0.1%
Base rate remains at the same level since pre-covid
The Bank of England has voted to keep the base interest rate of the UK at 0.1%, the lowest it has ever been. It comes as the BofE also forecast a stronger economic recovery than earlier expected following the Coronavirus pandemic.
There had been talk that the interest rate may drop into negative figures for the first time – a move that would see consumers being paid interest by lenders, rather than the usual other way round – but the rate has instead been maintained at 0.1% thanks to the more optimistic economic forecast for the UK.
It said that the rapid decline in hospitalisations from COVID sufferers, and the wide-spread and expedited rollout of the vaccine to adults, meant that relaxation of lockdown restrictions and the related improvements to the economy will be able to be put in place sooner than had been planned for.
It comes as the UK government also extended the job retention scheme. This should see more people keep their jobs even as businesses continue to struggle with the ongoing pandemic, with lower unemployment figures contributing to an economy that should rebound more effectively.
Record Low of 2020 Maintained
The nine members of the Monetary Policy Committee that set the Bank of England interest rate voted unanimously to retain the 0.1% figure. The vote was held just one day shy of the anniversary of it first dropping to this unprecedented low.
Only eight days earlier than this initial drop last year, the interest rate had been slashed from 0.75% to 0.25% as the World Health Organisation officially declared the COVID-19 situation as a pandemic.
Following the drop in interest rate, last April saw a double-digit percentage drop in the UK economy as it suffered. The most recent figures, pertaining to January of 2021, showed that the economy continues to shrink but only by 2.9%, a much lower amount than had been previously feared, triggering the decision to maintain the rate rather than drop lower.
Continued Uncertainty For 2021
Despite the improving situation, the Bank of England has still said that this is the most uncertain time for the economy and that the rate may be changed if current forecasts don’t come to fruition.
Any future changes will depend on the rate of inflation (currently at 0.7%) reaching the predicted 2% during the spring, with energy prices rising and oil prices dropping out of the annual comparison in the coming months. It’ll also take into account any measures on public health, and how the markets and consumers react to those.
The UK is following the same financial pattern as the US, where the Federal Reserve declared that it intends to keep interest rates low for at least two years. That’s despite the change in the predictions for the American economy going from a 4.2% rise to a 6.5% rise by the end of 2021.