BoE: QE still favoured vs. negative interest rates – UOB

Economist at UOB Group Lee Sue Ann assessed Thursday’s BoE event.

Key Quotes

“As expected, the Bank of England (BOE) held its benchmark interest rate steady at the recordlow of 0.1%, with the central bank having cut rates twice from 0.75% since the beginning of the COVID-19 pandemic. The BOE also left its target for buying government and corporate bonds unchanged at GBP745bn, after having announced an additional GBP100bn expansion in June.”

“Of more interest was the set of economic forecasts unveiled by the central bank. The nine-strong Monetary Policy Committee (MPC) said its central projection forecasts that GDP will continue to recover in the near-term, but is not expected to exceed levels from the end of 2019 until at least the end of 2021… The BOE also forecast the unemployment will jump, with the rate reaching 7.5% at the end of 2020, before gradually declining from the start of next year.”

“In all, we continue to believe the BOE is ready to emback on further efforts to counter the economic slump. The few pages that policymakers have presented on negative rates seem to highlight their potential drawbacks, rather than on their positive attributes. Hence, whilst they are reviewing the sustainability of negative rates and are careful not to rule anything out; it seems that, for now, the BOE will steer clear of going negative and stick with QE as the main stimulus tool.”