Bank of England paints a gloomy picture of UK economy as it holds interest rates at 0.1%

“The bank paints a very gloomy picture of the UK economy, with a halving in business investment, a near halving in business sales, a sharp rise in unemployment and households cutting their spending by a third", says Laura Suter, Personal Finance Analyst at AJ Bell.

“The outlook for GDP is also bleak in the short term, with a 30% fall in the second quarter of this year compared to the end of 2019. Thanks in part to the fall in the oil price, inflation is set to fall below 1% this summer and remain around that level for the rest of the year.

“The Bank is still fairly confident of its projections of a V-shaped recovery, with economic activity picking up ‘relatively rapidly’ once social distancing measures are relaxed. However, it depends how they are relaxed, what businesses can open up first, how quickly they start spending and how much the public remains wary of going out and spending their money. All eyes will be on Boris Johnson’s announcement on Sunday to help determine whether we exit this downturn quickly or at a more sluggish pace.

“Savers who have been battered by a series of cuts to rates can see no bright spot on the horizon as the Bank maintains interest rates at the unprecedented low of 0.1% and there’s no sign of them shifting upwards. Banks and building societies have been quick to slash rates, but so far there has been little respite for borrowers. With more people taking on more debt in order to get through the current crisis, many will be hoping that sustained low interest rates will provide some breathing space for those with debt.

“The bank has also left the possibility of more asset purchases on the table, with two members voting for an additional £100bn of bond buying. The Bank says at the current pace its current asset purchase programme will take until July, giving breathing space to assess this summer if more is required.”

Read the latest Bank of England Monetary Policy Report.

These articles are for information purposes only and are not a personal recommendation or advice.