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Bank of England upgrades UK growth forecast but holds interest rates
6 May 2021, 13:45 | Updated: 6 May 2021, 13:50
The Bank of England has hiked its forecast for UK economic growth this year as Britain heads for a significant post-pandemic recovery.
The Bank predicts gross domestic product (GDP) - a measure of the size of the economy - will bounce back by 7.25% in 2021 - up from its previous prediction of 5%.
It comes after the pandemic saw the UK suffer the biggest drop in output for 300 years in 2020, when it plummeted by 9.8%.
But the Bank's quarterly set of forecasts showed it downgraded its outlook for 2022, from 7.25% to 5.75%.
The positive view for the economy this year came as the Bank's Monetary Policy Committee (MPC) held interest rates at 0.1% and kept its quantitative easing programme on hold at £895 billion.
But one member voted to reduce it by £50 billion given the brighter recovery prospects.
Moments after the latest decision, the Bank said the most recent lockdown is set to reduce GDP by around 1.5% - far better than the 4.25% drop first feared.
It also sharply cut its forecasts for unemployment over the year.
The Bank said: "GDP is expected to rise sharply in 2021 second quarter, although activity in that quarter is likely to remain on average around 5% below its level in the fourth quarter of 2019.
"GDP is expected to recover strongly to pre-Covid levels over the remainder of this year in the absence of most restrictions on domestic economic activity."
But it warned over "downside risks to the economic outlook" from a potential resurgence of Covid-19 and the possibility that new variants may be resistant to the vaccine.