Bank of Englan to hold rates as economy rebounds

The Bank of England is expected to leave interest rates on hold at 0.1% on Thursday as the economy accelerates out of the record recession caused by the Covid-19 lockdown.

But the latest decision by the Bank’s Monetary Policy Committee (MPC) comes as worries mount over mass unemployment and long-term economic scarring from the pandemic once the UK's support schemes end.

Many economists think the bank will launch further action later this year, likely in the shape of more quantitative easing (QE) in November or December to prevent the rebound from fizzling out.

<figcaption class='imgFCap'>Bank governor Andrew Bailey has warned over long-term economic scarring of the pandemic (Tolga Akmen/PA)</figcaption>
Bank governor Andrew Bailey has warned over long-term economic scarring of the pandemic (Tolga Akmen/PA)

Gross domestic product (GDP) has recovered strongly since the nadir of the recession in April, with the latest official figures last week showing growth of 6.6% in July.

While down from the 8.7% recorded in June, it still puts the UK on course for double digit growth in the third quarter, according to experts.

This follows the eye-watering 20.4% contraction seen between April and June, which marked the biggest second quarter slump of any major global economy and plunged the UK into a historic recession.

Bank Governor Andrew Bailey said recently he expects the pandemic to permanently scar the UK's economy by reducing GDP by 1.5%, while deputy governor Sir David Ramsden warned it could be even worse.

With growth set to slow in the fourth quarter, and the end-of-year Brexit deal deadline approaching, experts said policymakers will be standing ready to take further action.

Inflation at a near-five-year low of 0.2% also gives the Bank plenty of room to manoeuvre.