UK to experience strongest growth in more than 70 years thanks to post-pandemic boom

The Bank of England today left interest rates at the record low of 0.1% but sharply raised its growth forecasts for the UK economy.

It now says GDP will rise 7.25% this year, the strongest growth since official records began in 1949.

That would take the UK economy close to where it was before Covid struck.

It previously had 5% penciled in – a striking uplift.

The Bank also cut its forecasts for growth in 2022, from 7.25% to 5.75%.

That move comes after weeks of good economic data.

The Bank’s Monetary Policy Committee was unanimous on keeping rates as they are, as the City of London was expecting.

The big question now is when rates will rise, perhaps at the start of next year.

Rachel Winter, Associate Investment Director at Killik & Co, said: “In a bid to reignite the economy before the UK is scheduled to fully reopen next month, low interest rates will remain a prime catalyst in turning savers into spenders. In the upcoming months, the Bank of England will be hoping that people loosen their grip on the purse strings and start spending their lockdown savings.”

The Bank said it would continue with its £875 billion Quantitative Easing scheme, a way of injecting money into the economy to raise inflation.

But it said the pace of the plan “could now be slowed somewhat” -- another sign that it is optimistic about growth and thinks less support will be needed before long.

One MPC member, Andy Haldane, voted to cut the size of the QE programme making him perhaps the most bullish top Bank official.

Jon Hudson, fund manager of Premier Miton UK Growth Fund, said:

“The MPC is now expecting a faster economic recovery than previously, led by households spending their forced savings accumulated over lockdowns. High demand and rising commodity prices will cause inflation to rise in the near term but medium term expectations remain unchanged, allowing the MPC to keep financial conditions loose. This inevitably increases the risk that the economy may overheat further down the line but for the time being it bodes well for domestically focused UK businesses.”

The pound was down slightly against the dollar at around $1.39 and against the euro at e1.154.

Tensions off the coast of Jersey may have contributed to the currency’s drift.

Paul Craig, portfolio manager at Quilter Investors, said: “This is where fiscal policy and private enterprise should now take over the reins to get the jobs market back to full steam.

“Well-run businesses now have a great opportunity to bounce back ahead of them with pent up demand being released.

“Many of these companies have shown great resilience getting through Covid and we expect those in the mid cap space to see strong demand and growth over the next six to twelve months.”

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