Bank of England predicts 7.25% growth in economy as interest rates held at 0.1%

The Chancellor will be tasked with trying to revive Britain's economy at the Budget.
The Bank of England has not changed interest rates. Credit: PA

The UK's economy could grow by more than 7% in 2021, according to the latest Bank of England forecast - the fastest pace since the Second World War.

Their projection is that the UK gross domestic product (GDP) - a measure of the size of a country's economy - will rebound by 7.25% and mark the best year of growth since official records began in 1948. This represents a sharper recovery than the central bank’s previous forecasts, with 5% growth previously expected. It comes after the pandemic saw the UK suffer the biggest drop in output for 300 years in 2020, when it plummeted by 9.8%.

But the Bank’s quarterly set of forecasts showed it downgraded its growth outlook for 2022, to 5.75% from 7.25%.

The rosier view for the economy this year came as the Bank’s Monetary Policy Committee (MPC) held interest rates at 0.1%.

The Bank kept its quantitative easing programme on hold at £895 billion, although one member of the MPC voted to reduce it by £50 billion given the brighter recovery prospects. In minutes of the latest decision, the Bank said the lockdown is set to see GDP fall by around 1.5% – far better than the 4.25% drop first feared.

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It also sharply cut its forecasts for unemployment over the year. The Bank said: “GDP is expected to rise sharply in 2021 second quarter, although activity in that quarter is likely to remain on average around 5% below its level in the fourth quarter of 2019. “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.” But it warned over “downside risks to the economic outlook” from a potential resurgence of Covid-19 and the possibility that new variants may be resistant to the vaccine.