Bank of England keep rate at 0.1 pct with sharp fall economy concerns ahead

LONDON, May 7 (Xinhua) -- Britain's central bank announced Thursday an unchanged interest rate at 0.1 percent, as the country's economy would suffer a sharp fall in 2020 due to the COVID-19 pandemic.

In a report issued by the Bank of England (BoE), the Monetary Policy Committee (MPC) voted unanimously to maintain bank rate at 0.1 percent at its meeting ending on Wednesday.

Meanwhile, the Committee voted by a majority of seven to two to continue with the program of 200 billion pounds (about 247.48 billion U.S. dollars) of British government bond and sterling non-financial investment-grade corporate bond purchases, bringing the total stock of these purchasing to 645 billion pounds (798.13 billion dollars).

The bank stated that the country's demand "have generally stabilised at very low levels" in recent weeks, after unprecedented falls during late March and early April and payments data point to a reduction in the level of household consumption of around 30 percent.

In addition, consumer confidence "has declined markedly" and housing market activity "has practically ceased", said the report, adding that according to the Bank's Decision Maker Panel, "companies' sales are expected to be around 45 percent lower than normal in the second quarter (Q2) 2020 and business investment 50 percent lower".

The MPC has built a "plausible illustrative economic scenario" given uncertain outlook for the domestic and global economies amid the pandemic, with a warning that a sharp shrink would be expected in 2020 despite "the fall in gross domestic product (GDP) should be temporary and activity should pick up relatively rapidly."

According to the illustrative scenario in the May Report, the British GDP was expected to plunge by some 25 percent in Q2, and the unemployment rate was expected to rise to around 9 percent.

The scenario also predicted the country's GDP would fall by 14 percent in 2020 as a whole, and "activity picks up materially in the latter part of 2020 and into 2021 after social distancing measures are relaxed, although it does not reach its pre-COVID level until the second half of 2021," said the report.

In terms of the inflation, the BoE stated that consumer price index (CPI) inflation declined to 1.5 percent in March and "is likely to fall below 1 percent in the next few months."

"CPI inflation is expected to fall further below the 2 percent target during the second half of this year, largely reflecting the weakness of demand," added the BoE.

"Relative to the scenario, the Committee assesses that the balance of risks to the economic outlook lies to the downside," said the report, adding that the Committee thought that "the existing stance of monetary policy is appropriate."