The Bank of England (BoE) met expectations and kept Bank Rate at 0.1%, a “sensible” decision that allows it to “leave some powder dry for now”.
Members of the BoE's Monetary Policy Committee (MPC) voted unanimously to keep interest rates at the record low level and to continue its asset purchase programme at the same level, £745bn.
It predicted UK GDP would not return to its 2019 level until the end of 2021, while unemployment will reach 7.5% by the end of 2020.
In its policy statement, the MPC said recent data developments, including strengthening global economic activity, recovering spending indicators and a return to normal of the housing market, may not be informative about how the economy will perform over a longer timeframe.
The outlook for the UK and global economies remains unusually uncertain. It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors.
The MPC's projections assume that the direct impact of Covid-19 on the economy dissipates gradually over the forecast period. Given the inherent uncertainties regarding the evolution of the pandemic, the MPC's medium-term projections are a less informative guide than usual.
Jon Hudson, UK equities investment manager at Premier Miton, said it "appeared sensible to leave some powder dry for now" with unemployment set to surge when the furlough scheme ends in October.
AJ Bell personal finance analyst Laura Suter said any interest rate rise has been ruled out by the rate setters for the foreseeable future.
"The Bank now forecasts that UK GDP will return to its 2019 levels by the end of next year, meaning it's expecting two lost years of growth for the UK. It's buoyed by the fact that people are getting out and spending more, no doubt fuelled by the summer holidays and lots of people staycationing, while Rishi Sunak's stamp duty giveaway has also put the rocket boosters under the housing market, with the Bank saying it has returned homebuying to near-normal levels."
However, she added: "The bank paints a bleaker picture on the outlook for employment and business spending and cautions that the UK's future is ‘unusually uncertain' thanks to the continued spread of the coronavirus.
"What's more, it expects inflation to fall back after a rise in July and hover around the 0.25% mark later this year. Worries about a second wave of Covid-19 mean the economic outlook is particularly uncertain and that negative interest rates can't be ruled out. Any rate rise is miles away and savers will continue to see paltry returns on their cash.
"As lots of people have started saving in earnest in lockdown, many for the first time, its bad news that their reward is to get a miniscule return on their money. Clearly with inflation expected to fall, at least they should be able to hunt out above-inflation rates, but they're unlikely to be able to get any meaningful growth on their pot while sticking to cash."
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