The bank says consumer spending has picked up fast since restrictions were eased in June.
Photo: niklas halle'n/Agence France-Presse/Getty ImagesLONDON—The Bank of England held its benchmark interest rate steady and said the U.K. economy would take until the end of 2021 to make up the ground lost during the coronavirus pandemic.
The Monetary Policy Committee agreed unanimously to hold the central bank’s benchmark interest rate at 0.1% and the target for its asset-buying program at £745 billion ($977 billion).
Officials estimate the economy shrunk by around 20% in the second quarter as a nationwide lockdown to contain the outbreak came into force. That compares with estimates of 9.5% for the U.S. and 12% for the eurozone, highlighting the scale of the U.K.’s economic hit.
The bank predicts the economy will recover some losses in the third quarter, saying consumer spending has picked up fast since restrictions were eased in June, but business investment is subdued and unemployment is expected to rise.
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It forecasts the economy will shrink by around 9% across 2020 as a whole and won’t recover to the level it was at the end of 2019 until the close of next year.
“The outlook for the U.K. and global economies remains unusually uncertain. It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these,” Gov. Andrew Bailey said.
The committee said it expects a substantial degree of slack in the economy to persist for the next year and keep inflation below its 2% target, implying officials will be in no hurry to adjust policy.
Officials also said they doubt that negative interest rates are the right tool to spur faster activity, given the risk they would dent banks’ profits when they are already facing pandemic-related losses on their loan books.
The central bank’s Financial Policy Committee said Thursday that British lenders have sufficient capital to absorb those losses.
Write to Jason Douglas at jason.douglas@wsj.com
Corrections & Amplifications
The Bank of England said Thursday that British lenders have sufficient capital to absorb pandemic-related losses. An earlier version of this article incorrectly stated that the central bank said this Wednesday. (Corrected on Aug. 6)
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