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The Bank of England (BoE) should not rush into radical conclusions about changing the framework for its monetary policy, BOE Monetary Policy Committee (MPC) member and Deputy Governor, Sir Jon Cunliffe, said on Thursday. 

“If we have a shock, should use policy space rapidly to avoid a liquidity trap,” Cunliffed added. “There is space for a conventional fiscal policy without helicopter money. We need to revisit fiscal sustainability benchmarks in light of low interest rate environment.”

GBP/USD reaction

The fact that the British pound came under strong selling pressure after the UK made it clears that it will start no-deal preparations if they fail to agree upon a broad outline of a trade deal by June causes investors to ignore Cunliffe’s comments. As of writing, the GBP/USD pair was down 0.25% on the day at 1.2870.

Additional takeaways

“The UK has weak domestic inflation despite domestic cost pressures.”

“The question is how much of weak UK domestic inflation is cyclical versus structural.”

“We can see inflation pressures coming from the UK labour market.”

“We may be seeing a trend decline in British firms’ margins and profitability.”

“Trend real interest rate for the UK is between zero and 100 bps.”

“We cannot explain very low interest rates purely through trend rate.”

“There is an entrenched pessimism in the real interest rate curve.”

“There is long-term pessimism about productivity in advanced economies.”