"Should trade talks end without a deal, the Bank of England stands ready to intervene with support likely to be in the form of a combination of measures"
Committee members predict that the Covid-19 vaccine will help to reduce downside risks to the economy.
The MPC judged that the near-term UK outlook has "evolved broadly in line" with its November expectations. However, it noted that ongoing restrictions due to Covid-19 is continuing to affect the economy, stating that GDP growth for Q4 is likely to be a little weaker than predicted in November.
Activity has been stronger than expected, despite the recent rise in Covid cases and associated lockdowns. However, 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 Q1 2021.
The MPC said that if the outlook for inflation weakens, it will "take whatever additional action is necessary".
The Committee added that it "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".
Frances Haque, chief economist at Santander, commented: “The MPC’s decision to leave Bank Rate unchanged at 0.1% was expected this month given talks over a possible trade deal with the EU continue.
“However, should trade talks end without a deal, the Bank of England stands ready to intervene with support likely to be in the form of a combination of measures designed to support financial markets and the UK economy. If necessary, the Bank of England could enact these prior to its next meeting in February next year.
“Should a deal be struck then the Bank of England will continue to monitor the progress of the UK economy and if required – for example if a further full lockdown ensued - could provide additional support.”
Hinesh Patel, portfolio manager at Quilter Investors, added: “Just as the Federal Reserve awaits news of a stimulus package, the Bank of England is stuck waiting for the Brexit negotiations to be resolved and as such have chosen to keep further stimulus on hold. It appears the BoE are paralysed to the outcome of a Brexit deal but still are still conscious as they seek to adapt where they can.
“But with much of the country under tier three restrictions, they are simply in wait and see mode before responding to any further economic threats. For just now they remain as accommodative as they have been throughout this year.
“Inflation is likely to be lower for longer, just like interest rates, and as such this loose monetary policy will be in place well into the recovery. But the Bank of England can’t solve every problem facing the economy. Interest rates will not prevent queues of trucks forming at ports, so it is now down to the government to achieve a deal and attempt to successfully roll out the vaccine.
“The economy faces long-term scarring, and the immediate events risk compounding the problems facing the UK economy. Andrew Bailey will need to use everything in his powers to get the economy going, but without the fiscal firepower from the Treasury it may quickly run out of room.”
