BoE leaves monetary policy unchanged

The Bank of England left monetary policy unchanged at ratesetters' last meeting of 2020 and said it would take whatever action was needed in an unusually uncertain time for the economy.

As expected the BoE's monetary policy committee voted unanimously to leave interest rates at their record low of 0.1% and to stick with the target for £875bn of government bond purchases. The BoE expanded its planned purchase of gilts by £150bn in November, taking its total asset purchase programme to £895bn.

The MPC left the pace of its planned bond purchases unchanged with the extra £150bn due to start in January and to finish around the end of 2021. It said the BoE stood ready to buy bonds faster if needed.

"At this meeting, the committee judged that the existing stance of monetary policy remains appropriate," the MPC's minutes said. "If the outlook for inflation weakens, the committee stands ready to take whatever additional action is necessary to achieve its remit."

The MPC put further stimulus on hold with talks continuing for the UK to secure a post-Brexit trade deal by 31 December and with mixed signals about the impact of Covid-19 on the economy.

"The outlook for the economy remains unusually uncertain," the minutes said. "It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom."

Since the last MPC meeting in November the UK has started vaccinating people against Covid-19, raising hopes for an end to the pandemic and a return to something like normal economic conditions. The MPC said the vaccine programme had reduced downside risks to the economy but did not change its view about the broad direction of the economy.

Thomas Pugh, a UK economist at Capital Economics, said: "The positive news on vaccines meant that the MPC didn’t feel the need to loosen policy any further at its December meeting today. As long as there is a Brexit deal, we don’t think it will need to loosen policy next year either. But if there is a no-deal Brexit, the MPC may find its Christmas dinner has turned into a working lunch."

The committee sets monetary policy to meet its 2% target for inflation. In November inflation dipped to 0.3% from 0.7% the previous month but the MPC said it expected prices to rise quite sharply towards its target in spring 2021 but that it would wait until there were clear signs before tightening policy.