Rolling coverage of the latest economic and financial news, as hopes of Brexit deal and a US stimulus package drive markets up
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The Bank of England has also warned that the Covid-19 restrictions introduced since the lockdowns lifted will weigh on the economy.
The minutes of this month’s monetary policy committee meeting explain that the latest tiered restrictions are tighter than the MPC expected a month ago, so will have a bigger impact on growth early next year.
The near-term UK outlook has evolved broadly in line with the Committee’s expectations in the November Report. UK GDP grew by 0.4% in October, leaving it 8% below its level in 2019 Q4. Activity has been stronger than expected, despite the recent rise in Covid cases and associated lockdowns.
Nevertheless, the restrictions on activity introduced after those lockdowns have been tighter than the Committee had assumed in its November forecast, and are expected to weigh more on activity in 2021 Q1. The successful rollout of vaccines should support the gradual removal of restrictions and rebound in activity that was assumed in the November Report, although it is less clear how this prospect will affect the immediate economic behaviour of households and businesses.
Related: Tier 3 lockdown rules in England: latest Covid restrictions explained
GDP growth in December was now expected to be weaker than at the time of the November Report.
The forecast had been conditioned on an assumption that following the end of the England-wide lockdown and for the United Kingdom as a whole, the average level of restrictions prevailing in mid-October would take effect for the remainder of 2020 Q4. The government had announced a higher average level of restrictions in England, as well as stricter restrictions on hospitality within each tier, in response to rising virus cases.
Related: UK coronavirus live: tier 3 restrictions extended across wide area of southern England
That means a total of 38 million people in England will be in Tier 3, or 68 per cent of the population.
The Bank of England has voted to leave UK interest rates on hold at their current record low of 0.1%.
It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom.
It will also depend on the responses of households, businesses and financial markets to these developments.
The MPC will continue to monitor the situation closely. If the outlook for inflation weakens, the Committee stands ready to take whatever additional action is necessary to achieve its remit.
The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.
