UK set for strongest economic growth since WWII, forecasts Bank of England

Interest rates to be kept at record low of 0.1% with GDP growth now forecast to rise at 7.25% in 2021

Last modified on Thu 6 May 2021 07.39 EDT

Britain is on track for the strongest growth since the second world war this year as it stages a faster than expected recovery from the Covid-19 pandemic, according to the Bank of England.

The Bank raised its estimate for UK GDP growth to 7.25% in 2021, up from a previous forecast in February for growth of 5% this year, as rapid progress with the Covid-19 vaccine rollout and easing of restrictions fuels a boom in pent-up demand.

Reflecting the pace of the recovery, the Bank said it expected GDP to return to pre-pandemic levels over the course of this year. Threadneedle Street’s rate-setting monetary policy committee (MPC) also voted unanimously to keep interest rates on hold at record-low level of 0.1%.

The central bank said it would slow its bond-buying to £3.4bn a week between May and August, down from its current pace of £4.4bn. “The expected completion point of the purchase programme remained unchanged. This operational decision should not be interpreted as a change in the stance of monetary policy,” the MPC said.

The upgrade to forecasts comes after a more resilient economic performance than expected during the third national lockdown at the start of this year, as businesses adapted to life under restrictions.

The MPC said the economy probably shrank by as little as 1.5% in the first three months of 2021 during the toughest restrictions since the first wave of the pandemic, significantly better than its previous forecast for a 4% plunge.

In a sign of progress in the economy, the MPC also maintained the current level of its £895bn quantitative easing bond-buying programme, a policy designed to keep borrowing costs low across the economy. One of the nine-strong committee voted to reduce the scale of the programme by £50bn.

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