LONDON – The Bank of England says the U.K.'s rapid rollout of coronavirus vaccines means the British economy should recover much of the ground lost during the pandemic by the end of the year.
Though the British economy is shrinking now because the U.K. is in lockdown as a result of a spike in virus infections, the central bank said activity should start to rebound strongly from the spring as a result of the speed of the vaccination program.
In a statement accompanying its decision to keep interest rates unchanged, the bank’s rate-setting Monetary Policy Committee said the economy is “projected to recover rapidly towards pre-COVID levels over 2021, as the vaccination programme is assumed to lead to an easing of COVID-related restrictions and people’s health concerns.”
There had been speculation that the central bank, which has been proactive through the pandemic, could reduce its main interest rate below zero for the first time in an attempt to get banks to lend more.
Instead, the nine-member panel voted unanimously to maintain the bank's main interest rate at the record low of 0.1% and to keep the bond-buying program as is. Since March, the committee has backed a further 450 billion pounds ($615 billion) in asset purchases to keep market interest rates low.
The bank expects the British economy to contract by a further 4% in the first quarter of 2021 as a result of the lockdown.
That contraction is far milder than the 20% or so decline the British economy endured in the second quarter last year during the first lockdown.
Governor Andrew Bailey said businesses have learned to adapt to lockdown conditions by bolstering their online oeprations.