The Bank of England sharply upgraded its forecasts for the UK economy on Thursday, citing the successful rollout of coronavirus vaccines and a sharp drop in COVID cases.
Policymakers at the Bank kept interest rates at their record-low level of 0.1% and maintained the size of its bond-buying package, through which the BoE injects money into the economy, at £895 billion ($1.25 trillion).
The BoE now thinks UK gross domestic product will grow 7.25% in 2021, compared to its February estimate of 5% growth, and recover its pre-pandemic level sooner than expected. UK GDP contracted 9.8% in 2020, the worst slump out of the G7 countries.
“New COVID cases in the United Kingdom have continued to fall, the vaccination programme is proceeding apace, and restrictions on economic activity are easing,” the bank said in its monetary policy statement.
The central bank said that while the overall size of its quantitative easing program would remain the same, the weekly pace of its purchases would slow somewhat.
The UK has achieved one of the fastest vaccine rollouts in the world, with 51% of the population having received at least one dose by May 4, according to Our World In Data. That compared to 63% in Israel and 44% in the US.
Business and consumer confidence has picked up, as coronavirus cases have fallen following strict lockdowns in January and February and the government has gradually reopened the economy.
The Bank of England’s monetary policy committee (MPC) was starting to sound more optimistic about the economy in March, said Thomas Pugh, UK economist at consultancy Capital Economics. “And we think it will become even more optimistic at the meeting in May,” he added.
“The economy has performed much better in the last few months than the MPC expected,” Pugh said, pointing to the unemployment rate which came in below expectations in February.
Pugh added: “The rollout [of vaccines] has continued to go well and there are no signs of a pick-up in virus cases that could stall the reopening of the economy.”
The pound was up 0.2% against the dollar at $1.393.