The Bank of England has grown more optimistic about economic recovery this year as a result of the vaccine rollout, predicting the fastest growth for decades.
On Thursday its monetary policy committee said it would maintain the institution’s previous course and that the country’s coronavirus vaccine rollout was helping the economy recover.
Covid-19 precipitated the largest drop in UK output for 300 years last year when it plummeted by 9.8 per cent. However, over the course of 2021 a gross domestic product (GDP) rebound of 7.25 per cent is forecast, higher than the previous prediction of 5 per cent.
A prediction of 7.25-per-cent growth for 2022 has been revised down to 5.75 per cent.
The bank is keeping its interest rate at 0.1 per cent and decided against adding to its £895m quantitative easing plan. Its 2-per-cent target for inflation would probably be hit this year, it said. The figure sits at 0.7 per cent now.
The committee said its estimated GDP decline of 1.5 per cent in the first quarter was less severe than expected and that the measure of economic output was likely to rise “sharply” in the second quarter by about 4.25 per cent.
It also cut its forecasts for unemployment over the year.
Its report said: “GDP is expected to recover strongly to pre‑Covid levels over the remainder of this year in the absence of most restrictions on domestic economic activity.
“Demand growth is further boosted by a decline in health risks and a fall in uncertainty, as well as announced fiscal and monetary stimulus.
“Consumer spending is also supported by households running down over the next three years around 10 per cent of their additional accumulated savings.
“After 2021, the pace of GDP growth is expected to slow as the boost from some of those factors wanes. The level of activity is higher in each quarter of the forecast than in the February projections.”
The committee said its predictions were predicated on coronavirus restrictions being eased in line with plans set out by Westminster and the devolved governments. A potential resurgence of the virus, and the threat of new strains, could negatively affect the economy, it warned.