UK Central Bank Holds Base Rate at 0.1%... Asset Purchase Scale Also Maintained

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The Bank of England (BOE) has decided to keep the base interest rate at the current 0.1% and maintain the asset purchase target for market liquidity supply at the existing 745 billion pounds (approximately 1,161.1 trillion won).

According to Bloomberg on the 6th (local time), the BOE announced the results of the Monetary Policy Committee (MPC) regular meeting for August. At the meeting held on the 4th, the committee members unanimously decided to keep the base interest rate at the current 0.1%. The current base rate of 0.1% is the lowest level in the history of UK base rates.

On March 10, the BOE held a special MPC meeting amid growing concerns over an economic recession due to the COVID-19 pandemic and sharply cut the base rate from 0.75% to 0.25%. Then, on March 19, another special meeting was held, and the base rate was further lowered to 0.1%. Since then, the rate has been kept steady through the regular meetings in March, May, June, and August.

The BOE decided to maintain the asset purchase target at the previously announced 745 billion pounds. Before the COVID-19 crisis, the BOE held government bonds (435 billion pounds) and non-financial corporate bonds (10 billion pounds), but at the special meeting on March 19, it decided to expand this by 200 billion pounds. Additionally, at the regular meeting in June, it agreed to increase the target by another 100 billion pounds.

The BOE stated that although the medium- to long-term outlook is unusually uncertain, it expects the UK's gross domestic product (GDP) growth rate will not surpass pre-pandemic levels until the end of next year. The GDP growth rate for the second quarter of this year is expected to be more than 20% lower than the fourth quarter of last year, and the unemployment rate is forecasted to rise to 7.5% by the end of this year. However, the impact is expected to be somewhat less severe than the forecast made in May.

The BOE emphasized that the recovery of the UK economy depends on the COVID-19 situation, public health measures, and how the government, households, and businesses respond to these, stating that it is closely monitoring the situation and is prepared to adjust monetary policy accordingly.