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Lee Sue Ann, Economist at UOB Group, gives her views on the latest BoE event.

Key Quotes

“The BOE delivered a larger-than-expected boost to its Quantitative Easing (QE) program. Today’s fresh injection of will boost the BOE’s total package to GBP895bn.”

“Since the onset of the COVID-19 pandemic in March, the BOE has cut rates twice from 0.75% to 0.10%, and launched a bond-buying program worth GBP745bn. With cases spiking in the country once again, UK PM Boris Johnson’s government has announced a new lockdown, running in England starting today to 2 December.”

“According to the quarterly Monetary Policy Report, the BOE now expects the economy would shrink by 11% in 2020, more severe than the 9.5% contraction it forecast in August. Inflation is projected to remain well below the BOE’s 2% target in the near-term, reflecting the direct and indirect effects of COVID-19 such as lower energy prices and cuts to VAT.”

“As expected, there was nothing on negative rates at this meeting. Recall that back in September, much of the attention was on the reveal that the BOE and Prudential Regulation Authority will begin work in 4Q20 on the operational considerations around a move below zero. That process has yet to finish.”

“In our baseline forecasts, we do not see the Bank Rate going below zero. Having surprised today with a GBP150bn increase in the asset purchase target, we are not expecting any more QE for the rest of this year. We do acknowledge, though, that with the economy taking another hit from a second lockdown, the chances of the MPC having to do more, either through negative rates or QE, have certainly risen. A no-deal Brexit will also increase that risk.”