BoE: Potential for extra easing – UOB

Lee Sue Ann, Economist at UOB Group, assessed the latest UK inflation figures and the probability of further easing by the Bank of England.

Key Quotes

“Reflecting the initial impact of the COVID-19 crisis in the UK, inflation slowed in March. Consumer prices rose 1.5% y/y, down from 1.7% y/y in February. Core inflation stood at 1.6% y/y, also lower from the 1.7% y/y reading in February…Even then, the latest data does not take into account the lockdown imposed in the last week of the month, which came after the price survey was conducted.”

“Indeed, the weeks-long lockdown introduced by the UK government in March will certainly lead to a significant slowdown in the UK economy, and consumer prices are expected to remain low as a result.”

“The latest employment figures, released on Tuesday (21 April) showed the UK jobs market already in a weak state before the COVID-19 pandemic hit.”

“Including bonuses, wages were up 2.8% y/y, down from 3.1% y/y a month earlier, and also below expectations of 3.0% y/y. Meanwhile, the government’s job retention program, which offers wage subsidies, is doing its bit to prevent damage to the labour market. The program opened on 20 April and processed claims covering a million employees.”

“Estimates suggest that the BOE still has plenty of space to expand its current quantitative easing program. There are GBP390bn of gilts currently available to buy and that is before the enormous issuance due this year. As such, the sluggish economic backdrop would put the prospect of more BOE easing on the table.”