BOE Sees Second U.K. Contraction in a Year on Covid Lockdown

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The Bank of England predicts the economy will contract in the first quarter after the U.K. stepped up restrictions to prevent the spread of the coronavirus.

The central bank kept policy unchanged this month, putting the ball in the Treasury’s court if more economic stimulus is needed to get the country out of the latest slump. It pared its forecast for 2021 growth to 5% from 7.25% in November.

The rate-setting Monetary Policy Committee, led by Governor Andrew Bailey, voted unanimously to keep the key interest rate at 0.1% and the total bond-purchase target at 895 billion pounds ($1.2 trillion). That’s in line with economists’ predictions before the decision.

With most of the U.K. in a third lockdown to contain Covid-19, another contraction in the first quarter would follow the worst recession in three centuries in 2020. Keeping borrowing costs low helps Chancellor of the Exchequer Rishi Sunak should he want to introduce new aid packages in his March 3 Budget.

Most analysts see the BOE benchmark remaining at or above the current level through the middle of 2023.

©2021 Bloomberg L.P.

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