Rate-setters at the Bank of England voted unanimously to keep Bank Rate at its current level, warning against a “premature tightening” in policy.
“Policy should both lean strongly against downside risks to the outlook and ensure that the recovery was not undermined by a premature tightening in monetary conditions,” the minutes of the Monetary Policy Committee’s meeting said.
“Most members judged that the conditions set out in the MPC’s existing policy guidance, which were in any case necessary but not sufficient conditions for any future tightening in monetary policy, were not met.”
Bank chief economist, Andrew Haldane, however, continued pushing for a reduction in asset purchases.
Even so, the results of both votes, on the level of Bank Rate and the target size of asset purchases, were correctly anticipated by the consensus.
Bank Rate therefore stayed at 0.10%, the target for the asset purchase programme £875bn and that for corporate bonds at £20bn.
Significantly, the MPC said Bank of England staff had revised their projection for the level of UK gross domestic product in the second quarter higher by one and a half percentage points relative to their May forecasts.
Output in “a number” of sectors was in fact now above its pre-Covid levels, but remained “materially below” in others.
Furthermore, inflation was only likely to exceed 3.0% for a “temporary” period and the direct impact of higher commodity prices on consumer price inflation was expected to be “transitory”.
Inflation expectations in the UK meanwhile remained “well anchored”.
Regarding the potential implications of the new Delta variant of Covid-19, policy-makers said they “were likely to be relatively small compared with the impact of previous stages” but downside risks nevertheless remained.
