United Kingdom: BoE stays on hold but does not rule out further easing, slashes forecasts
At its meeting ending on 6 May, the Bank of England (BoE) left the policy rate at a record low of 0.10%, and announced it would continue with its GBP 200 billion bond purchasing program, to take the total stock of investment-grade corporate bonds and UK government bonds to GBP 645 billion. However, two committee members voted to boost bond purchases by an additional GBP 100 billion. This comes after a series of meetings in March during which the Bank cut rates, expanded asset purchases and took steps to support business credit.
The Bank’s decision was likely driven by a desire to evaluate the effect of recent monetary stimulus before contemplating further measures, particularly as comprehensive economic data for the period following the implementation of the nationwide lockdown in late March is still fairly limited. Moreover, the Bank commented that available high frequency figures for UK demand point to stabilization—albeit at extremely low levels—in recent weeks, while financial conditions have improved.
Along with the policy meeting the BoE published an “illustrative scenario” for the path of GDP, which foresees a 14.0% contraction this year—which would be the sharpest in over 300 years—before a sharp 15.0% rebound in 2021
Looking ahead, the BoE stated it “stands ready to take further action”. Any further easing would likely take the form of asset purchases or other non-conventional policy tools rather than rate cuts, given the Bank’s aversion to negative rates.
According to Kallum Pickering, senior economist at Berenberg:
“By sending a strong signal that it plans to ease monetary policy further soon while staying put for now the BoE has managed to stay on top of the risks without actually doing anything extra. Judging by the BoE’s communication and the near-term economic outlook, markets should expect the BoE to announce additional asset purchases (at least £100bn) at the 18 June meeting.”