Bank of England sees recovery signs but stresses outlook still unclear

LONDON: The Bank of England said Britain's economic recovery was gathering pace thanks to the speed of COVID-19 vaccinations but that the outlook remained unclear, dampening speculation it might be moving towards a reversal of its huge stimulus.

Pandemic restrictions could be lifted "somewhat more rapidly" than the British central bank had thought last month, it said on Thursday after its March policy meeting.

"Since the Monetary Policy Committee's previous meeting, the news on near-term economic activity had been positive, although the extent to which that news changed the medium-term outlook was less clear," the BoE said.

"Different MPC members placed different weights on the balance of risks around the outlook."

The pound weakened by around a third of a cent against the US dollar as investors took the announcement as a sign that the BoE was in no rush to start dialling back on its stimulus programmes. There was little change in British government bond yields, which returned quickly to levels seen before the policy announcement.

"The tone of the meeting has remained cautious, in line with the stance adopted by the other major central banks over the last week," Silvia Dall'Angelo, senior economist at the International Business of Federated Hermes, said.

The BoE is trying to balance short-term optimism about Britain's vaccination programme with uncertainty about the scale of the economic damage wrought by the pandemic, which is likely to push unemployment up further, and the impact of Brexit.

On Wednesday, the Federal Reserve pledged to keep US interest rates near zero at least until 2023 even as it forecast a sharp jump in economic growth and inflation in 2021, helped by a rapid vaccine rollout in the United States.

But the European Central Bank said last week it would accelerate money-printing to keep a lid on euro zone borrowing costs, which it fears could derail a recovery as countries struggle to roll out their vaccine programmes.

As expected, the BoE kept its stimulus programme unchanged ahead of the expected recovery in Britain's economy later this year, helped by the inoculation programme.

Britain is on track to have given a first COVID-19 shot to half of all adults in the next few days, making it one of the fastest countries to roll out vaccines.

The BoE kept its benchmark interest rate at an all-time low of 0.1%, in line with forecasts in a Reuters poll of economists.

The central bank also left unchanged the size of its 895 billion pound ($1.25 trillion) bond-buying programme.

The BoE said it planned to keep the pace of its purchases of British government bonds steady at around 4.4 billion pounds per week, but reiterated that it could slow the pace in the future.

"The Committee continued to envisage that the pace of purchases could remain at around its current level initially, with flexibility to slow the pace of purchases later," it said. r