The Bank of England has upgraded its growth forecast for the coronavirus-hit UK economy and signalled it will not raise the interest rate in the near term – despite seeing a looming spike in inflation ahead.
The latest meeting of the central bank’s interest rate-setting committee left policy unchanged, with rates remaining at their COVID-19 crisis low of 0.1% as analysts had widely expected.
Its £895bn programme of asset purchases, known as quantitative easing, was also kept static.
But its quarterly Monetary Policy Report said that the vaccine-led recovery from the sharpest hit to the economy in over 300 years in 2020 was clearly under way at a greater speed than initially expected.
The governor of the Bank of England is Andrew Bailey
The Bank said it now saw growth of 7.25% during 2021 – up from the 5% it expected earlier this year.
Sky’s economics editor Ed Conway said: “It is a question of bouncing back to where we were before the recession.
“The Bank says that it thinks we’re going to get to that point… by the end of this year. That’s a little bit better than expected – they had been talking about sometime next year.”
The Bank’s predictions for an acceleration were backed up by a closely-watched survey of firms, released earlier on Thursday, which pointed to the largest leap in business activity since 2013 in April for the services sector.
The IHS Markit/CIPS Purchasing Managers’ Index (PMI) recorded a reading of 61 – up from 56.3 in March – with any reading above 50 indicating growth.
It noted “sharp increases” in both business and consumer spending as coronavirus restrictions continued to ease.
The latest series of PMI reports have also highlighted spikes in prices for companies through higher transport and raw material costs.
The services PMI reported the steepest rise in costs for businesses in over four years and widespread evidence those are being passed on down the supply chain.