The UK restoration is selecting up velocity with the introduction of the Covid vaccine

Some people on Oxford Street, some wearing face masks, as the third national coronavirus lockdown resumes on March 4, 2021 in London, UK.

Mike Kemp | In pictures | Getty Images

LONDON – The Bank of England said Thursday the UK economy was on the way to a stronger economic recovery than previously expected, backed up by the country’s comparatively quick Covid-19 vaccination campaign.

The BOE improved its 2021 growth outlook for the world’s fifth largest economy to 7.25%, slightly above analysts’ expectations and up from 5% in February.

This is followed by a 1.5% decline in UK GDP in the first quarter – flatter than expected – and as restrictions on economic activity ease and Covid infections continue to decline in the UK.

In light of these developments, the BOE said GDP was likely to “rise sharply” in the second quarter, while economic output was expected to return to pre-pandemic levels later in the year. The British economy had previously announced that it would recover to pre-pandemic levels in the first quarter of next year.

The UK economy contracted 10% in 2020 – its worst annual performance in more than three centuries. This was more severe compared to most other European economies, partly due to the slower implementation of stringent public health measures to contain the spread of the coronavirus.

The BOE’s Monetary Policy Committee voted unanimously on Thursday to keep interest rates stable and voted 8: 1 to keep its quantitative easing program at current levels.

Andrew Haldane, BOE Chief Economist, voted against this proposal, preferring to reduce the size of the program. Haldane is leaving the central bank this year to become executive director of the Royal Society for Arts, Manufactures and Commerce.

The vote means the central bank’s prime rate will remain at an all-time low of 0.1% and the target inventory of asset purchases will remain unchanged at £ 895 billion ($ 1.2 trillion). The central bank said the pace of its government bond purchases could “now be slowed down a bit,” but warned it was “as intended” in the program’s announcement in November.

“The expected completion point of the purchase program remained unchanged. This operational decision should not be interpreted as a change in monetary policy stance,” the BOE said in its report.

Regarding inflation, the BOE expects the consumer price index to temporarily rise above its 2% target towards the end of this year, largely driven by developments in commodity prices.

In the medium term, inflation will return to around 2%.

“Overly Hawkish”

The BOE’s better economic forecast comes as the country gradually emerges from lockdown and more people are vaccinated against Covid.

The latest government data shows that there have been more than 50.6 million Covid shots given in the UK, with nearly 35 million first doses and 15.8 million second doses given.

Prior to the announcement, Deutsche Bank analysts said they expected it to be “a very close call” as to whether the bank had decided to pull the trigger to accelerate the asset buying pace.

Sanjay Raja, senior British economist at Deutsche Bank, said in a research note that a decision on the rejuvenation would most likely be made at the bank’s June meeting, adding that it will do “well” with the lifting of social restrictions would match on June 21st.

Investors were optimistic about the UK’s improving economic outlook. The UK’s FTSE 100 gained 1.8% in the previous session and posted its best daily performance since mid-February. The stock index was slightly higher on Thursday.

The pound sterling was up 0.15% against the dollar after the report was released to trade at $ 1.3923 while the euro was up 0.2% against the pound to trade at 86.50 pence.

Fabrice Montagne, chief UK economist at Barclays, told CNBC’s Street Signs Europe on Thursday that the BOE was “one of the most optimistic” central banks even before it raised its economic outlook.

The BOE’s February forecast was at the high end of the consensus range, Montagne said, and increasing its forecast now “risks sounding overly hawkish and potentially encouraging early hikes”.