GBP Lacks Support Following Bank of England Announcement

The Bank of England has voted unanimously to hold UK interest rates at 0.1% whilst simultaneously expanding its quantitative easing programme by another £100 billion to £745 billion. The highly anticipated move comes in the wake of a record fall in UK economic output during the Covid-19 lockdown. The bank is yet to rule out negative interest rates, commenting that it expects inflation levels to remain low and the labour market challenging.

The pound immediately rallied following the news but is yet to find any stabilisation above $1.25 versus the US dollar and €1.11 versus the euro. The short-term momentum has been undermined as Andrew Haldane, BoE Chief Economist, unexpectedly voted against further QE expansion. A year-end deadline for the programme also suggests slower support from BoE Governor Andrew Bailey.

However, the global outlook from the banks statement was more upbeat; “Recent data out-turns suggest that the fall in global GDP in 2020 Q2 will be less severe than expected at the time of the May Monetary Policy Report. There are signs of consumer spending and services output picking up.”

Investor hopes of a V shape economic recovery therefore remain, with significantly better than expected retail and unemployment numbers out of the US in recent weeks. There is some speculation that UK consumers could emulate that surge in demand ahead of tomorrow mornings May retail sales figures.