BOE stands pat on rates; says recovery will take longer

The Bank of England stood pat on interest rates on Thursday as it said the UK's economic recovery will take longer than previously thought.

Policymakers voted unanimously to leave interest rates at a record low of 0.1% and the asset purchase programme at £745bn, as expected.

The bank said the economy will not return to its pre-Covid level until the end of next year. In May, it had said this would happen in the second half of 2021.

The economy is now expected to shrink by 9.5% this year, compared to a previous forecast for a 14.5% contraction. However, it also revised 2021 growth down to 9% from 15%.

Inflation is expected to fall further below the Bank's 2% target and average at around 0.25% in the latter part of the year.

The BoE indicated that it is willing to keep policy loose even when inflation rises to 2%.

"The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably," it said.

The unemployment rate is set to rise to around 7.5% by the end of the year, the BoE said, and decline to 6% next year. In May, it had said the unemployment rate would be around 8% in 2020 and 7% in 2021.

At 0755 BST, sterling was up 0.3% against the dollar at 1.3157.

Ruth Gregory, senior UK economist at Capital Economics, said: "Given that the £300bn of asset purchases announced between March and June will not be completed until 'the turn of the year', today’s unanimous decision by the MPC to leave policy unchanged was unsurprising and suggests that the MPC thinks that it has done enough for now.

"But we still think that the Bank will eventually expand QE by a further £250bn by the end of 2021."