"There continues to be a significant possibility of further rate cuts and more quantitative easing to help support the economy as we move through the tail end of 2020."
At its latest meeting, the MPC said it "does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably".
The Committee noted that the outlook for the economy remains "unusually uncertain", noting that health concerns are continuing to drag on activity and the unemployment rate is projected to rise markedly.
Twelve-month CPI inflation fell from 1.0% in July to 0.2% in August and is expected to remain below 1% until early 2021.
In its minutes, the MPC said: "The path of growth and inflation will depend 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."
Industry experts are now predicting the possibility of further rate cuts, including the potential for negative interest rates.
Frances Haque, chief economist at Santander, commented: “The MPC’s decision to leave Bank Rate unchanged at 0.1% was expected this month, along with the decision to keep the amount of quantitative easing undertaken by the Bank of England unchanged.
“However, although the economy has started to recover, there remains uncertainty caused by the ongoing issues around trade negotiations with the EU as well as the possibility of more stringent measures being imposed if Covid-19 cases start to increase rapidly. As a result, there continues to be a significant possibility of further rate cuts and more quantitative easing to help support the economy as we move through the tail end of 2020.”
Derrick Dunne, chief executive of Beaufort Investment, said: “Most commentators expected the Bank of England to hold rates today, and the committee voted unanimously for continuing with its existing support measures, which was no surprise given the huge amount of stimulus pumped in to the economy already. Ramping this up further would be much too premature at this point, particularly given recent rebounds in activity.
"More interesting was the notion of negative interest rates. The Bank has steered away from committing to this previously, but today's explicit comment has undoubtedly paved the way for their introduction next year. Whether this additional firepower is needed is the big unknown, but at least by exploring the possibility further, the Bank can be as prepared as possible to step in further to boost the economy if needed.
Hinesh Patel, portfolio manager at Quilter Investors, added: “The Bank of England was a dovish as it could be today without using up the valuable ammunition which we expect they will need in the quarters ahead. They have left their options open should unemployment turn structural and the economy doesn’t transform in the way they think it will.
“The noise around the introduction of negative interest rates refuses to go away, and while we still think it is unlikely, with the way the Brexit negotiations are going Andrew Bailey does have that as a nuclear option. However, today’s release suggests it could only be a 2021 event rather than this year at the soonest.
“With restrictions beginning to be reimposed by the government as a result of the uptick in coronavirus cases, the BoE will want to be as accommodative as possible – keeping borrowing costs low for businesses and increasing its asset purchasing programme. Like the government it may need to get creative in some of its stimulus measure, including looking at new funding for lending schemes.”
