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 expectation for the UK's post-pandemic recovery
The Bank of England has hiked its expectation for the UK's post-pandemic recovery. Picture: PA Images
Ewan Quayle

By Ewan Quayle

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%.

READ MORE: Children 'struggling to socialise in person after months of lockdowns'

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.

The reopening of businesses in England is fuelling a post-Covid recovery
The reopening of businesses in England is fuelling a post-Covid recovery. Picture: PA Images

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.

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"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.

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