Cascade Commentary

MPC votes unanimously to maintain Bank Rate at 0.10% at March 2021 meeting as developments in global GDP growth has been stronger than anticipated

March 2021

By Georgia Boddy

The Bank of England’s Monetary Policy Committee (MPC) gathered on 17th March 2021 and voted unanimously to maintain the bank rate at a record low of 0.10%, while the target stock of purchased UK government bonds remains consistent at £875 billion. 

In February 2021, the MPC’s projections assumed that the vaccination programme would lead to Covid-related restrictions easing, allowing the UK GDP to recover significantly throughout 2021 towards pre-Covid levels. Since February, developments in global GDP growth have been stronger than anticipated and the new US fiscal stimulus package is hoped to provide additional support to the global recovery. Alongside positive news on the vaccination rollout, as discussed in our previous report, longer-term government bond yields have risen significantly to similar levels seen pre-Covid which has resulted in risky asset prices remaining resilient.

Covid infections and hospitalisation rates have thankfully fallen across the UK and the vaccination programme has been extremely impressive thus far, with 30 million people (57% of all UK adults) receiving their first dose as of 28th March 2021 and over 95% of people aged 60 and over have been vaccinated with their first dose in England. In part reflecting this, the sterling effective exchange rate has appreciated and mortgage credit conditions have slightly eased. 

The Labour Force Survey reported that the unemployment rate rose to 5.1% in the three months to December however it was said at the meeting that it is likely that labour market slack has remained higher than implied by this measure due to the extension of the Government’s employment support schemes. The number of potential redundancies identified through HR1 notifications continued to be relatively muted through the first quarter. 

Twelve-month CPI inflation rose to 0.7% in January, which has largely reflected the effects of Covid on the economy, particularly the decline in oil prices seen early last year however CPI inflation is expected to return promptly to the 2% target in the spring as it begins to reflect recent increases in energy prices, with inflation expectations remaining ‘well anchored’.

The biggest takeaways from this month’s meeting is that the outlook for the economy, and particularly the relative movement in demand and supply during the recovery from the pandemic, remains ‘unusually uncertain’. The economy and its performance continue to depend entirely on the evolution of the pandemic and how households respond to developments in measures to protect public health.

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