Rates, QE Unchanged, Vaccine Reduces Downside Risk

Bank Rate unch at 0.1%, QE stock unch at combined GBP 895bn; decision unanimous

BOE: Successful trialling of Covid vaccine reduces downside risk to the economic outlook

BOE sees Q4 GDP slightly weaker than in Nov report

BOE: Unemployment likely to rise substantially in next few quarters

BOE sees CPI rising sharply in spring

The BOE voted unanimously to leave the Bank Rate and the amount of QE unchanged in the Dec meeting, in line with MNI's Preview. The MPC judges that the outlook remains unusually uncertain and it depends on the development of the pandemic, trading arrangements with the EU and the responding consumer behavior. The successful trialing of a vaccine is likely to reduce the downside risks to the economic outlook. However, the MPC sees UK-weighted global GDP in Q4 slightly weaker than expected in the Nov report. They further noted that developments in the labour market remain difficult to interpret and the BOE anticipates unemployment to rise substantially in the coming quarters. Inflation is forecast to rise sharply in spring as the VAT cut comes to an end and the large fall of energy prices earlier in 2020 drops out of the annual comparison. The MPC noted that if the outlook weakens, they stand ready to take whatever action is necessary to achieve its remit. The BOE further states that it "does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably".