The U.K. central bank kept its key rate steady at 0.1% and its bond-buying target unchanged at £745 billion on Thursday, but warned that the U.K. economy would not rise back to its 2019 level before the end of 2021. It also gave the clearest signal yet that it no longer considers negative rates as taboo.
The pound rose on the news, up 0.4% against the euro /zigman2/quotes/210561278/realtime/sampled GBPEUR -0.4807% and 0.3% against the dollar /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.2554% in London mid-day trading
The Bank of England’s short-term prospects for the U.K. economy are, however, less somber than they were three months ago, with unemployment at the end of the year seen at 7.5% of the population (versus 10% previously).
Inflation currently stands at an annual 0.6% but could decline to 0.25% in the latter part of the year, the BoE said, warning that it could take another two years before it finally hits its official 2% annual target.
The Bank said it is still reviewing its rate policy, but that negative rates are among the options under study. It “will continue to review the appropriateness of a negative policy rate as a policy tool alongside its broader toolkit,” it indicated.
So, what’s the outlook?
Both decisions on rates and quantitative easing were unanimous among the nine-member monetary policy committee. But tough choices lie ahead, when the Bank will have to decide how to contribute to the stimulus the U.K. economy will need when, come January, it is hit by another major shock — Brexit.