The Bank of England has said that the UK’s rapid Govt-19 vaccination program will help the economy grow stronger this year.
The economy is expected to shrink by 4.2% in the first three months of 2021, amid tight locking regulations to slow the spread of the virus.
But policymakers expect it to come back this spring when consumer confidence returns.
The bank told high street lenders to be prepared for negative interest rates, despite rejecting immediate action.
What does this mean for homes?
The UK economy is expected to “recover quickly” by 2021, with the successful vaccination program supporting “material recovery in household costs”.
Andrew Bailey, Governor of the Bank of England, described the vaccine roll as “good news” that it would speed up a return to normal life.
“We think this will support a year-round recovery,” he said.
Its latest monetary policy statement Positive vaccination news led to an increase in UK holiday bookings later this year, although overseas bookings were disabled.
While government-backed programs are expected to limit any immediate increase in unemployment, the unemployment rate is expected to rise to 7.8% later this year.
However, policymakers said the economy’s outlook was “unusually uncertain.”
What are the issues?
The bank said that regeneration in economic activity depends on controlling any new strains of the virus, as well as what families want to spend.
It said most people expect life to “return to normal” within a year.
But some voluntary social distances are likely to persist because it has already significantly deregulated economies.
In New Zealand, for example, the cost of restaurants and hotels has not yet returned to pre-epidemic levels.
The bank said: “The Govt vaccination program is expected to ease social remote controls, reduce economic uncertainty and lead to greater activity, although it is difficult to predict the timing of those effects.”
Are people more likely to spend or save as the economy recovers?
However, many of the high-income people who work from home save a lot during epidemics.
The bank said an additional $ 125 billion was withdrawn from UK savings accounts last year.
“This number is likely to rise significantly in the first half of 2021,” the bank said.
Policymakers hope that retired families who receive the vaccine soon will start spending first.
Higher job security is also expected to lead to higher costs.
However, the bank noted that 70% of those surveyed plan to put their extra money into savings instead of spending it.
Sales of new cars are also expected to decline, although concerns about the use of public transport have increased sales of second-hand vehicles.
What happens with interest rates?
The bank’s Monetary Policy Committee (MPC) on Thursday kept interest rates at an all-time low of 0.1%.
Following the review, it also asked high street banks to be prepared for the possibility of falling below zero in the future.
What are Negative Interest Rates?
The term “interest rates” is often used interchangeably with the Bank of England base rate.
Described as the “most important single interest rate in the UK”, the base rate determines how much interest the Bank of England pays on the financial institutions that hold the money with it and what it charges to borrow from them.
High Street banks use this to determine how much interest they are paying depositors and what they are charging to borrowers or mortgagees.
The Bank of England generally lowers interest rates when people want to spend more and save less.
In theory, taking interest rates below zero should have the same effect. But in practice, it is a bit more complicated.
After all, why would someone pay or lend to someone to save money in a savings account, when they have the money at home for free?
Are Negative Interest Rates Coming to the UK?
The bank insisted that business lenders need at least six months to prepare, which does not mean that negative rates are “immediate, or at any time expected.”
Mr Bailey added: “My message to the markets is that you should not try to read MPC’s future behavior from these decisions and the actions we take in the toolbox.
“No one should take the signal from this.”
What is the reason behind the bank’s strategy?
The Bank of England not only calculates jobs and prices, but also vaccines.
On this basis, policymakers are optimistic about the recovery time in the middle of this year, despite the fact that the current three months have seen a lockdown in the economy.
In fact, that recovery will be mathematically sharper than previously predicted because it is now falling further. The bank said in its forecast that “GDP will rise strongly” as deregulation is expected to ease between April and September.
As a result, the bank fired, leaving interest rates at record lows. None of the nine committee members who set the rates voted for the “negative rates” found in Europe.
Commercial banks will be asked to prepare in the coming months, so the Bank of England was pained that the lever was an option, but it was not a signal of intentions.
The bank has made it clear that post-Brexit trade rules will hit the economy and that there are new “barriers” to reducing trade between the UK and the EU, some of which have not yet been released. Such changes go beyond the government’s repeated claims of “toothbrushing problems.”
The big news, however, is the optimistic claim that the economy and people will be vaccinated in the summer.