The Stage of Unlocking the UK Economy has been Postponed
The stage of unlocking the UK economy has been postponed due to fears of a third wave of coronavirus. Moreover, the country's Prime Minister, Boris Johnson, intends to maintain the restrictions with some easing until October next year. As an alternative, UK Chancellor Rishi Sunak is in favour of delaying a decision on the UK online sales tax, but this is unlikely to be enough to revive the economy. It should be noted that the success of vaccination in the country and the Bank of England's statement of confidence in a stable recovery in inflation, despite record debt, may limit the pound's losses.
The decision of the British regulator last week to leave interest rates unchanged was expected. Perhaps the Bank of England is not too concerned about either rising bond yields or a marked increase in expectations of a rate hike. The economic outlook for the rest of this year largely depends on the speed of vaccination, as well as on the emergence of new strains of the virus, which may require the introduction of longer restrictions.
Meanwhile, the expiration of the VAT cut for hotel businesses should lead to higher inflation in April, although the overall level of consumer prices will remain below the 2% target set by the Bank of England for the next two years. The absence of significant inflationary pressures will provide an opportunity for further monetary easing, if necessary to support the economy. Soft monetary policy is likely to keep the Bank of England's discount rate at its current level with an increase in quantitative easing later this year.