Bank of England slows bond-buying, sees economy bouncing back more quickly

Bank of England slows bond-buying, sees economy bouncing back more quickly

© Reuters. FILE PHOTO: People sit at outside restaurant area, as the coronavirus disease (COVID-19) restrictions ease, at Covent Garden in London, Britain April 12, 2021. REUTERS/Henry Nicholls

By David Milliken and Andy Bruce

LONDON (Reuters) -The Bank of England slowed the pace of its trillion dollar stimulus program and forecast a faster recovery for Britain from the coronavirus slump on Thursday, but stressed it was not tightening monetary policy.

Governor Andrew Bailey said it was good news that the economy looked set for a stronger recovery than previously forecast, with less unemployment.

But he also stressed there would still be a big shortfall against the economy’s pre-pandemic path.

“(Let’s) not get carried away. It takes us back by the end of this year to the level of output that we had essentially at the end of 2019 pre-COVID,” Bailey said at a news conference after the BoE’s decision.

The central bank said it would reduce the amount of bonds it buys each week to 3.4 billion pounds, down from a current pace of 4.4 billion pounds a week.

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

So far, most central banks in rich countries around the world have stressed they are in no hurry to scale back huge the amounts of support they have provided for their economies.

But the Bank of Canada said last month it could start to raise rates by late 2022 and pared back its bond-buying.

Sterling initially fell on the announcement but then moved higher against the U.S. dollar and recovered against the euro.

Dean Turner, an economist at UBS Global Wealth Management, said the “slightly more hawkish” announcement by the BoE could help sterling to make further gains between now and the end of the year.

The central bank kept its benchmark interest rate at an all-time low of 0.1% and the total size of its bond-buying programme unchanged at 895 billion pounds ($1.24 trillion), as expected by economists polled by Reuters.

BoE chief economist Andy Haldane, who has warned of a possible jump in inflation, cast a lone vote to cut the size of the bond-buying programme by 50 billion pounds.

Haldane is due to leave the bank in June.

GROWTH FORECAST UP, UNEMPLOYMENT SEEN LOWER

The BoE raised its forecast for British economic growth in 2021 to 7.25% from a previous estimate of 5.0% made in February.

The increase reflected a smaller-than-feared hit from a third coronavirus lockdown which began in January and the extension of higher public spending and tax cuts announced by finance minister Rishi Sunak in March.

The BoE said it now expected unemployment to rise only slightly to a peak of almost 5.5% in the third quarter of this year, when Sunak’s jobs protection programme is due to expire.

But it lowered its projection for growth in 2022 to 5.75% from its previous estimate of 7.25%.

The BoE also said the economy was set to return to its pre-pandemic size in the last quarter of 2021, a bit earlier than its February projection of the first quarter of 2022.

It forecast consumer price inflation to be fractionally below its 2% target in two years’ time, based on expectations in financial markets which saw Bank Rate at 0.3% at that point and 0.6% by the second quarter of 2024.

“The MPC’s forecast for CPI inflation in three years’ time is 1.93%, the lowest prediction it has made at this horizon since Feb 2014,” Samuel Tombs, an economist with Pantheon Macroeconomics, said.

“That’s a clear signal from the MPC that it thinks investors have gone a bit too far in pricing-in rate hikes.”

($1 = 0.7193 pounds)

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