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.

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get?

News and updates on everything to do with coronavirus and your personal finances.

Everything you need to know about being furloughed

If you’ve been ‘furloughed’ by your company, here’s what it means…

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.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
Tenant eviction ban ends soon: Help for renters worried about losing homes

The ban on evictions in England is due to come to an end this weekend. If you’re concerned about losing...

Close