You are here: Home - Saving-Banking - News -

Base rate held at 0.1% as uncertainty remains in job market after furlough ends

0
Written by:
17/09/2020
The Bank of England has maintained the base rate at a historic low 0.1% as “the outlook for the economy remains unusually uncertain”.

The Bank’s Monetary Policy Committee (MPC) voted unanimously to keep rates at 0.1% – the lowest in its history – again dodging rumours of rates turning negative.

Minutes from the meeting noted that previous assumptions of any change in monetary policy would be conditional on an “orderly move to a comprehensive free trade agreement with the European Union on 1 January 2021”.

Once this had been set, UK GDP was projected to continue to recover from its trough in April.

But the unemployment rate was projected to rise and the inflation rate was expected to hit target of 2% in two years’ time.

The committee added that while the number of furloughed workers has continued to decline; standing at 3.5 million in August from its 9.6 million peak, “considerable uncertainty remains around the labour market after the government job support schemes unwind”.

The minutes read: “On the one hand, GDP had recovered by slightly more than had been expected, which would support labour demand. On the other hand, employment survey balances and the stock of job vacancies had remained weak. Given that recent shifts in the pattern of consumption spending had occurred much more quickly than in previous periods of structural change, employment in the worst-affected sectors could fall to a greater extent than envisaged.

“The path of growth and inflation will depend on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom. It will also depend on the responses of households, businesses and financial markets to these developments.

“Recent domestic economic data have been a little stronger than the Committee expected at the time of the August Report, although, given the risks, it is unclear how informative they are about how the economy will perform further out. The recent increases in Covid-19 cases in some parts of the world, including the United Kingdom, have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year.

“At this meeting, the committee judged that the existing stance of monetary policy remains appropriate.”

‘Possibility of lower rates in future can’t be ruled out’

Rachel Winter, associate investment director at Killik & Co, said: “The rumours of negative interest rates continue to rumble on but, in welcome news for UK savers, they are yet to become a reality.

“The last few months have seen businesses reopen and consumer spending ticking upwards, and at this stage is seems the Bank of England does not see a further interest rate reduction as necessary.

“The Bank will also be mindful of the recent weakness in sterling, which would likely be exacerbated by a further reduction in rates. However, there remains the prospect of significant job losses when the furlough scheme comes to end next month which will inevitably put further pressure on household finances, so the possibility of lower rates in future cannot be ruled out.

“As we have seen over the last decade, lower interest rates can have the effect of enticing more savers into the stock market as they seek to earn a return on their savings.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Autumn Statement: Everything you need to know at a glance

Yesterday Chancellor Jeremy Hunt made his first fiscal statement in the role, outlining a range of tax measure...

End of Help to Buy: 10 alternatives for first-time buyers

The deadline for Help to Buy Equity Loan applications passed on 31 October. If you’re a first-time buyer who...

Moving to an energy prepayment meter: Everything you need to know

As households struggle with the soaring cost of energy, tens of thousands of billpayers are expected to move o...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week