Economic Perspectives –

The Bank: no policy tightening until significant progress in eliminating spare capacity and achieving inflation target

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


22nd March 2021


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the MPC’s latest decisions, along with the Fed’s:

  • The MPC left policy unchanged at their March meeting. Moreover, they confirmed that they did not intend to tighten monetary policy at least until “…there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably”.
  • The MPC was cautiously optimistic on the real economy with stronger growth and lower unemployment expected compared with the February Report. It was also relatively relaxed about inflationary pressures.
  • The Fed also left policy unchanged at their March meeting. Fed chair Powell said the Fed would “…ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete”. 
  • US GDP was projected to grow by 6.5% for 2021 (4.2% in December), boosted by President Biden’s $1.9tn relief package as well as the progress of the vaccine programme. Powell noted that “…the recovery has progressed more quickly than generally expected”.  The appropriate policy path for the Federal funds rate (%) was projected to be unchanged at 0.1% (0-0.25%) until end-2023.

Other news included:

  • Public sector net borrowing (PSNB) was a record £19.1bn in February 2021, compared with £1.6bn in February 2020.
  • The PSNB for the first 11 months of FY2020 was £278.8bn, well short of the OBR’s forecast of £355bn for the full financial year FY2020 (made in March 2021). But note the OBR included an estimated £27.2bn in write-offs of business loans under the government’s coronavirus schemes whereas the ONS’s data does not yet include any estimates for these write-offs.
  • Public sector net debt (PSND, excluding public sector banks, but including the Bank of England) was £2,131.2bn (97.5% of GDP) at end-February 2021 compared with £1,784.0bn (83.4%) at the same point last year.
  • The debt-interest-to-revenue ratio was 2.0% in the rolling 12-months to February 2021, compared with 3.4% a year earlier, and well below the 6.0% target level.
  • In the March 2021 Global Financial Centres Index (GFCI), a report compiled by Financial Centre Futures (FCF), New York retained the top ranking. London remained in second place, but its ratings fell, possibly reflecting the effects of the end of the transition period.
  • Oil prices tended to firm further in March, on continued output constraint by OPEC+.
  • Concerning GB/NI border checks, the UK unilaterally announced that the current grace periods for goods (principally food and parcels) going from Great Britain to Northern Ireland would be extended. The European Commission sent a letter of formal notice to the UK saying these unilateral actions “breached substantive provisions of the Northern Ireland Protocol”.

Ruth Lea said “The MPC was relatively cautious in their assessment of the economy. Concerning monetary policy, they seem to be prepared to ‘look through’ the expected rise in inflation and keep the Bank Rate at its current rate (0.1%) until full recovery is assured. Prospects of negative interest rates, given the improved economic outlook, do, however, seem to have receded.”



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Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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