The pound rose sharply on Thursday across the board after the Bank of England meeting. Market participants lowered expectations about negative rates in the UK boosting the currency. Analysts at Capital Economics aren’t expecting the BoE to increase its purchases program or use negative interest rates in either 2021 or 2022.
Key Quotes:
“While unanimously voting to leave interest rates at +0.10% and the stock of quantitative easing (QE) at £895bn today, the MPC essentially ruled out using negative interest rates for at least another six months because financial firms were not ready to implement them.”
“On the whole the new MPC’s economic forecasts looked a bit more optimistic. Admittedly, the current COVID-19 lockdown meant that the Bank revised down its forecast for Q1 GDP to a 4% q/q fall. But the rebound from Q2 was revised up to leave GDP getting back to its pre-crisis peak in Q1 2022 – the same as in November’s forecasts.”
“Our own GDP forecasts are a bit more upbeat than the Bank’s beyond the next 18 months. That’s why we aren’t expecting the MPC to increase QE or use negative interest rates in either 2021 or 2022. 10-year gilt yields have already risen by 8 bps today. But if the markets continue to come round to our view, they may yet rise from 0.44% now to 0.50% by the end of the year.”
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