The Governor of the Bank of England, Andrew Bailey, has appeared in the last hour, reiterating that the Central bank committee is ready to take whatever action is necessary to achieve its mission if the inflation outlook weakens.
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The direct effects of COVID-19 are supposed to fade, but they have a lingering indirect effect on the economy.
We believe that it is valuable to act quickly and firmly to support the economy with the asset purchase.
Trade in goods and services with the EU is likely to decline over time, affecting the British pound.
We assume that the UK’s economic recovery will be supported by significant fiscal and monetary policy actions.
A small degree of excess demand is expected in the second half of the three-year forecast period.
A coordinated policy with the UK government does not compromise the independence of the BoE.
The calculation of the room for maneuver for monetary policy is self-imposed, we could review it, we did not have to.
We are not in the middle of a double dip recession.
Our forecast does not have two consecutive quarters of negative economic growth
The expected 2% contraction in the fourth quarter of GDP does not seem dramatic, but we are starting it 9% lower than before COVID.
Today we have not said anything about negative rates because we have exposed the work that we are doing on them.
It would be a cardinal sin to say that we have a tool in the box and we don’t know how to use it.
We will not put a schedule at work on negative rates, the Monetary Policy Committee is unanimous on the importance of doing that job.
The additional 150 billion pounds of asset purchases are intended to return inflation to its target in two years.
The market puts a certain probability on negative rates, we don’t read anything on that.
We don’t make predictions about which tools we are going to use, we use both forward-looking and QE.
The Brexit talks continue, so we base our forecasts on the assumption of a deal.
We expect goodwill around UK-EU trade from 1 January.
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Credits: Forex Street
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