Bank of England Upgrade UK Growth Forecasts for 2020

The Bank of England has unexpectedly upgraded the UK’s economic growth forecast for the rest of 2020 from a decline of -14% to -9% – suggesting its prediction of a “V Shape” recovery remain. It also slightly downgraded its two year projections, largely due to uncertainty over the impact of Brexit and the potential for further setbacks following localised outbreaks of Covid-19.

The bank voted unanimously to hold UK interest rates at 0.1% and to keep its asset purchasing facility at £745bn for August. The unified decision by all nine members of the Monetary Policy Committee has reduced the likelihood of negative interest rates in the short-term. Addressing the subject head-on in the accompanying minutes from the meeting, Governor Andrew Bailey stated that such a move is “under active consideration” but also hinted it would unlikely be implemented anytime soon.

The pound immediately rallied following the news and has found some stabilisation above $1.31 versus the US dollar but remains range-bound between €1.10 – €1.11 versus the euro. Attentions now turn back to Governor Bailey who will be speaking later today, with the markets listening for further insight into the banks latest round of decision making.

There will also be heightened scrutiny of the consumer price inflation reading for July in a couple of weeks, following an unexpected move higher over June. A cut in value added tax on hospitality service from 20% to 5% and the “eat out to help out” scheme began this month, both aimed at curbing inflation whilst also stimulating consumer spend.