The Bank of England held interest rates at a record low of 0.1% in November and pledged to continue injecting money into the economy to help support it during the pandemic.
The Bank’s Monetary Policy Committee (MPC) voted unanimously to keep rates on hold this month. It is currently awaiting feedback from lenders on how they would cope if interest rates were to move into negative territory.
In its latest quarterly Monetary Policy report, which sets out the economic analysis and inflation projections that the MPC uses to make its interest rate decisions, the Committee said that the outlook for the economy remains “unusually uncertain”. Its performance will depend on how the pandemic evolves, how long current restrictions continue and on new trading arrangements between the EU and the UK. The Committee promised that it would take “whatever additional action is necessary” to achieve its remit of meeting the government’s 2% inflation target.
The economy is expected to shrink by 2% in the final three months of 2020, and then to pick up early next year , provided current restrictions are eased. It is only expected to recover to pre-pandemic levels in 2022. The unemployment rate is expected to peak at around 7¾% in the second three months of next year.
Lower rates for longer
The Bank has stepped up its bond-buying programme to support the economy, adding an extra £150bn to its quantitative easing (QE) programme. The aim of QE is that it will increase demand for bonds, which in turn lowers their yield. This is often positive news for investors as it supports bond prices which in turn usually feeds through to the stock market.
It also means interest rates could remain lower for longer, benefiting homebuyers and those looking to remortgage.
Lenders have been inundated with mortgage application in recent weeks, as buyers have rushed to take advantage of the current stamp duty holiday. According to latest Bank of England data, around 91,500 mortgages approvals for house purchases were recorded in September, the highest number since September 2007.
If you are hoping to buy before the stamp duty holiday ends, it makes sense to act sooner rather later as although the property market remains open, lockdown restrictions are slowing things down. Find out more about how the stamp duty holiday works here.
Interest rates held at 0.1% in November