The Bank of England has injected £150bn into the economy, as part of quantitative easing (QE), ahead of increased restrictions across the country.
Moreover, the BoE’s monetary policy committee (MPC) have unanimously voted to maintain the base rate at 0.1%.
In the 12 months to September 2020, CPI inflation increased to 0.5%, however, remained significantly below the MPC’s target of 2%.
BoE: Mortgage approvals at their highest level since 2007
The bank attributed this to the temporary impact of lower energy prices and the reduction in VAT, as well as some downward pressure from spare capacity.
Looking ahead, CPI inflation is expected to remain at ½% over the rest of the year, and the MPC predict inflation to reach its 2% target in two years’ time.
Furthermore, the BoE expect to see household spending and GDP increase in the first quarter of 2021, as a result of loosening restrictions.
In addition, the BoE predicts that as the UK leaves the Single Market and Customs Union on 1 January, UK trade and GDP will also be affected.
David Ross, managing director of Hometrack, said: “While there are some negative economic headwinds it is encouraging to see the Bank of England maintain this historically low interest rate.
“This, combined with the stamp duty holiday, will ensure demand for mortgages remains high, however, with fewer products now available, it is increasingly clear many potential home movers will miss out.
“The impact of COVID-19 on the economy is still not fully clear, but the increased QE will help increase spending. We are still some way from the introduction of a negative interest rate but these remain an option for the bank who could use these to stimulate borrowing and the wider economy next year.”
Alex Maddox, capital markets and digital director at Kensington Mortgages, said: “The announcement of £150bn of QE will be well received, as the latest lockdown is going to put yet more pressure on the economy.
“Now the BoE needs to work on how to get this support through to mortgage customers, since mortgage rates from the high street have been increasing recently.”
Simon Gammon, managing partner at Knight Frank Finance, added: “The Bank of England would clearly like to hold borrowing costs lower for longer in an attempt to spur economic growth, but the cost of mortgages is likely to keep rising while lenders are being swamped with new applications.
“There were more mortgages approved for house purchase last month than any time since October 2007 and the surge in property market activity is showing few signs of slowing. As a result we are seeing a huge variety in borrowing costs from lenders, depending on their volume of work and appetite to lend.
“The government’s decision to keep the property market open during the second lockdown was a sensible move and will prevent the market from clogging up ahead of the end of the stamp duty holiday this coming March.”