Bank of England Holds Steady, Says Negative Rates Wouldn't Help -- Update
By Jason Douglas
LONDON--The Bank of England held its benchmark interest rate
steady and said the U.K. economy will take until the end of next
year to make up the ground lost during the coronavirus
The BOE said in a statement Thursday that its Monetary Policy
Committee agreed unanimously to hold the central bank's benchmark
interest rate at 0.1% and the target for its asset-buying program
at 745 billion pounds ($977 billion).
Officials estimate the economy shrank around 20% in the second
quarter as a nationwide lockdown to contain the outbreak came into
force. That compares with 12% for the eurozone and 9.5% for the
U.S., highlighting the scale of the U.K.'s economic hit.
The BOE predicts the economy will recover some of those losses
in the third quarter, saying consumer spending has picked up fast
since restrictions were eased in June, but business investment is
subdued and unemployment is expected to rise.
It forecasts the economy will shrink around 9% in 2020 as a
whole and won't recover to the level it was at the end of 2019
until the end of 2021.
"The outlook for the U.K. and global economies remains unusually
uncertain. It will depend critically on the evolution of the
pandemic, measures taken to protect public health, and how
governments, households and businesses respond to these," Governor
Andrew Bailey said in a statement.
The committee said it expects a substantial degree of slack in
the economy to persist for the next year and hold inflation below
its 2% target, implying officials will be in no hurry to adjust
Officials also said they doubt that negative interest rates are
the right tool to spur faster activity, given the risk they would
dent banks' profits at a time when they are already facing
pandemic-related losses on their loan books.
The BOE's Financial Policy Committee said Wednesday that British
banks have sufficient capital to absorb such losses.
Write to Jason Douglas at firstname.lastname@example.org
(END) Dow Jones Newswires
August 06, 2020 02:58 ET (06:58 GMT)
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