Bank of England stays on hold in June, not in hurry to start scaling back stimulus

The Bank of England, as widely expected, kept its benchmark interest rate at a record low and kept the size of its stimulus program unchanged in its June policy meeting.

The central bank opted to stay on hold and see if jump in inflation on accelerating economic recovery after the lockdown will be transitory as the BoE expects and also to see the movements in unemployment numbers when the government scales back its pandemic job-protection scheme.

The BoE’s Monetary Policy Committee (MPC) voted 9-0 to keep rate unchanged and to leave its 20 billion pound corporate bond purchases, while the committee voted 8-1 to keep its 875 billion pounds government bond buying program, with MPC member Haldane voting again for a reduction of bond purchases by 50 billion pounds.

The Bank of England’s policymakers decided to remain at the safe side and strongly against the downside risks to the outlook that the economic recovery will not be undermined by premature monetary policy tightening.

UK inflation rose to 2.1% in May, overshooting BoE’s 2% target, although still being well below the US rate of 5%, and was expected to grow further above the target, mainly due to strong rise in oil and other commodity prices.

The BoE expect consumer prices to peak slightly above 3%, which is higher than previously thought, before easing back to 2% and would look at medium-term inflation expectations rather than relying on the factors that are likely to have a temporary impact.

The central bank has also revised its Q2 GDP estimate by 1.5%, with growth in June expected to be still around 2.5% below pre-pandemic levels.