Rapid vaccination drive clears the way for a full reopening by June

The Bank of England (BOE) is reporting that the United Kingdom is on course to end the government’s crisis support to households and businesses later this year on the back of a faster than expected recovery in the economy.

To this extent, England’s Central Bank says it will soon be slowing its emergency bond-buying, signaling that it is on course to end the crisis support later this year, as a strong rebound takes hold across the economy. This has come about with the removal of pandemic restrictions.

Officials led by BOE Governor Andrew Bailey contend that the UK should recover its pre-coronavirus level of output one quarter earlier than previously forecast. This is due to the country’s rapid vaccination drive, which is clearing the way for a full reopening of the UK economy by June.

The strength of the rebound in the British economy has convinced outgoing Chief Economist Andy Haldane to cast a sole minority vote to cut the target for bond purchases. The BOE’s downward gear-shift on bond buying reflects Prime Minister Boris Johnson’s rapid progress on achieving a critical mass of vaccinations.

The move puts the institution in a vanguard of global central banks that are cutting back on crisis stimulus, reflecting a broader discussion in major economies about how long to keep emergency stimulus support flowing. In the US, Treasury Secretary Janet Yellen this week rowed back on comments, where she seemed to suggest interest-rate increases might be needed.

Meanwhile, earlier today, Norway’s central bank said it’s still on track to start tightening later this year.

Chancellor of the Exchequer Rishi Sunak writes to the BOE

Chancellor of the Exchequer Rishi Sunak has penned a letter to the BOE commenting on the government’s economic response.

He wrote: “The success of the government’s vaccine programme means the nations of the UK can now begin to chart a safe clear course out of lockdown, and the government’s unprecedented economic response continues to support our ongoing economic recovery.”

Haldane, who is set to quit the BOE in June, opted to cut the target for the current round of bond purchases to £100 billion (US$139 billion) from the present total of £150 billion, meaning the programme would finish in August rather than at the end of the year.

“There was now clear evidence that the economy was growing rapidly, with both household and company spending surprising significantly and persistently to the upside, and consumer and business confidence bouncing back,” he told his colleagues.

BOE forecast upgrade

The BOE delivered a big forecast upgrade today, as well as a slowdown in bond purchases and a dissenting vote from its outgoing chief economist. All of that suggests increasing confidence about the economic outlook. The BOE will reduce the pace it buys government debt to £3.4 billion a week, £1 billion lower than the previous amount.

Officials insisted this was an “operational decision” that shouldn’t be interpreted as a shift in their policy stance. The success of the UK’s vaccination drive has driven down infection and death rates and allowed the government to stay on track to fully re-open the economy in June.

The next stage in the loosening of restrictions is due later this month, when indoor hospitality will open and two households will be able to mix inside. The BOE’s optimism over the recovery is reflected in more bullish economic forecasts, which now show the economy reaching pre-pandemic levels in the fourth quarter of this year.

Unemployment will peak at 5.4 per cent, rather than 7.8 per cent previously predicted. Officials also reckon consumers will spend more of the savings they have built up during the crisis, doubling their forecast over three years to 10 per cent of the extra hoarded cash.