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 pandemic.

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 policy.

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 jason.douglas@wsj.com

 

(END) Dow Jones Newswires

August 06, 2020 02:58 ET (06:58 GMT)

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