File photo dated 16/3/2020 of the Governor of the Bank of England, Andrew Bailey, as the bank is expected to launch another ?100 billion of economy-boosting action on Thursday amid fears that the new lockdown in England will leave the UK on the brink of a double-dip recession.
The Bank of England on Thursday cut its growth forecasts for 2021, reflecting the toll new strains of COVID-19 and associated lockdowns have taken on the economy.
The central bank's Monetary Policy Committee (MPC) held interest rates unchanged and left its programme of unconventional monetary policy unchanged in its first meeting of 2021. Economists had forecast no changes.
The MPC voted unanimously to hold the UK's interest rate at 0.1%, where it has been since last March. The Bank of England's £875bn ($1.19tn) programme of government bond buying was left unchanged, as was the £20bn asset purchase facility for corporate bonds.
The central bank published its quarterly Monetary Policy Report alongside the decisions. In it, the central bank downgraded its forecasts for growth in 2021, predicting the UK economy will grow by just 5% this year. In November, the Bank of England had forecast growth of 7.25%.
The MPC said growth at the end of 2020 was "materially stronger than expected in the November Report" and forecast modest growth in the final quarter of the year.
However, mutations of COVID-19 forced the UK back into a lockdown at the start of January. Policymakers said the current lockdown was not as damaging as restrictions last March but the UK economy was likely to contract by 4% in the first three months of the 2021.
Despite worse prospects in the short-term, the successful and rapid rollout of coronavirus vaccines across the UK mean economists are optimistic about the growth prospects for the UK later in the year.
"Vaccination programmes are under way in a number of countries, including the United Kingdom, which has improved the economic outlook," the MPC said.
"GDP is projected to recover rapidly towards pre-Covid levels over 2021, as the vaccination programme is assumed to lead to an easing of Covid-related restrictions and people's health concerns."
The committee upgraded its forecast for growth in 2022, predicting expansion of 7.25%. The MPC also downgrade its forecast for last year's slump, saying it now expected GDP to contact by 10% in 2020 rather than an earlier forecast of 11%.
The MPC said the outlook remains "unusually uncertain" and said it "stands ready to take whatever additional action is necessary."