At the February Monetary Policy Committee (MPC) meeting yesterday, the BoE observed that the UK economy had performed much better than had been expected in Q4 2020 when it likely grew around 0.5% quarter-on-quarter (q/q). The MPC acknowledged that the first quarter of this year was much more challenging due to the lockdown and estimated that GDP will have contracted by around 4% q/q.

Nevertheless, the bank chose to look ahead to the UK economy’s brighter longer-term prospects. The progressive roll-out of the COVID-19 vaccines was seen to be facilitating the easing of restrictions and opening up of the economy from the second quarter of this year, paving the way for firming growth.

The BoE estimated that GDP growth of 5.0% in 2021 and 7.25% in 2022.

However, the bank also made it clear that they remain fully prepared to take further stimulus action to support the economy should it fail to improve as anticipated or if downside risks intensify.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “The Bank of England held off from providing more help for the UK economy at the February meeting of the Monetary Policy Committee (MPC) despite the weaker lockdown-affected outlook for the first quarter.

“The MPC’s decision not to provide more stimulus was largely expected – although there had been some thought that the Bank of England could announce some more asset purchases. In the end, there were unanimous 9-0 votes within the MPC for both keeping interest rates at 0.10% and the targeted stock of asset purchases at £895bn.”

On the potential introduction of negative interest rates, Mr Archer added: “The Bank of England did report on the practicalities of introducing negative interest rates in the UK, coming to the conclusion that banks would need at least six months to prepare for such a move. The Bank noted the introduction of negative rates before these preparations have happened would be likely to create operational risks.

“The Bank made it clear that while it would be possible to introduce negative interest rates in the UK, this did not necessarily mean they would be enacted. The Bank said it did not want send a signal that it intended to set a negative Bank Rate at some point but that it “would be appropriate to start the preparations to provide the capability to do so if necessary in the future.”

“Opinion seems to be split between the MPC as to whether negative interest rates would be in the best interests of the UK economy. There have been cautiously positive comments made about negative interest rates from some MPC members, while other MPC members have expressed doubts about negative interest rates, observing that none of the conditions that would justify taking interest rates negative have been met.

“Potentially significantly, the Bank of England Governor appeared to adopt a sceptical approach to negative interest rates in an online Bank of England event on 21 January, observing that international evidence to-date suggested negative interest rates were only effective in specific circumstances.”

Kevin Brown, savings specialist at Scottish Friendly, said that the holding of the 0.1% interest rate is ‘of no great surprise at the moment’.

However, he added: “Buried in the Bank’s latest report though is more alarming indications about the prospects for inflation. It expects inflation to shoot up this Spring, to near its 2% target. If this happens it would be yet another hammer blow to savers who may be locked in dismally low-rate savings accounts.

“Anyone who hasn’t thought about somewhere to put their money needs to get their skates on to prevent its erosion by this stalking inflation threat. Investing through the stock market is one of the few alternatives savers have at the moment that offers the potential for above inflation returns in the event of a 2% jump.”

Jason Cozens, founder & CEO of fintech Glint, said: “The fact that consumers are celebrating another month without negative interest rates tells you everything you need to know.

“For too long, savers have been punished by central banks and forced to endure historically low interest rates alongside rising inflation which erodes their long-term purchasing power - their savings are no longer even worth the same as when their first entrusted them to banks, whilst banks have profited by lending these deposits and putting them at risk.

“No wonder consumers are flocking to alternative global currencies such as Bitcoin and, increasingly, gold.

“The possible introduction of negative interest rates will be a further blow to savers, forcing them to actually pay to save and passing on a cost that further reduces their purchasing power. Previously, consumers would have had no option but to accept these costs but there are increasingly viable everyday currency alternatives that also act as a more reliable and rewarding store of value in the long-term.”