Bank of England expects best year for UK economy since 1941

In a prepared statement Thursday, the nine-member Monetary Policy Committee said it will maintain the bank''s main interest rate at 0.1 per cent.

The unanimous and widely anticipated decision means that interest rates will remain at the lowest level in the bank''s 327-year history.

Alongside its decision, the bank''s rate-setting panel said growth is likely to be greater than it previously thought as lockdown restrictions ease, vaccinations grow common, and people feeling more at ease begin to ramp up spending.

The bank is now projecting U.K. economic growth of 7.25 per cent in 2021, up from its previous forecast of 5 per cent.

That would be the greatest economic rebound since 1941 when the UK was on a war footing, according to Bank of England statistics that date back to 1700.

Because it anticipates growth being brought forward, it has revised down its forecasts for next year. It is now expects 5.75 per cent growth in 2022, instead of the 7.25 per cent previously predicted.

If growth returns as quickly as the central bank expects, the British economy should make up all the ground lost during the pandemic by the end of this year.

Bailey cautioned against euphoria, noting that the pandemic will still leave a long-term “scarring” effect on the British economy that will stretch public finances and keep unemployment higher than it otherwise would have been.

“Let''s not get carried away,” he told reporters in a conference call. "It still means that two years of output growth have been lost to date.”If pre-pandemic trends persisted, that would equate to around 3 per cent of output lost during the pandemic.

“So there will still be a big gap between where the economy is and where it should be at that point,” said Luke Bartholomew, senior economist at Aberdeen Standard Investments.

"It is this gap that will keep monetary policy very accommodative over the next few years even as the economy posts some extremely strong growth numbers, and inflation picks-up somewhat in the short run.”Though few expect the bank to raise interest rates anytime soon, it signaled Thursday that it is willing to ease its quantitative easing program by slowing the rate of its monthly bond purchases, though the total remains unchanged.

The bank''s brighter outlook comes despite a tough winter period when lockdown restrictions were reimposed in the face of a particularly acute second wave of the virus.

Though the UK had Europe''s highest virus-related death toll at more than 127,500, new cases are now at their lowest levels since last summer and the vaccine rollout has been lauded.

By Wednesday, around 52 per cent of the British population had received at least one dose of vaccine with around a quarter getting two.

“A fast and effective vaccine rollout meant that many individuals might feel safe to return to pre-COVID spending behaviour, supplemented by considerable pent-up demand from the earlier periods of restrictions,” the committee said, according to minutes of their meeting.

But it warned of “downside risks to the economic outlook” from a potential resurgence of the virus and the possibility that new variants may be resistant to the vaccine.