The MPC has kept rates unchanged while expanding QE by £100bn, with an intention to reach the alloted asset purchases by the end of this year. At this pace, weekly purchases will be around half of what they were since March. In a press conference following the announcement, Bailey emphasised the fact that BoE purchases remain significant despite the fact QE was no longer set to “warp 10”.
In the minutes, members were cautiously upbeat about how bad the initial covid-19 shock to the UK and global economy has been. Sterling initially enjoyed a mild bid due to the optimistic tone of the release, and the 100bn increase in QE was completely priced in by markets due to the very explicit hints given by Bailey and Broadbent that the move was coming. Since then, the pound has found itself on the back foot in the following hours.
There was no discussion of negative rates, which is telling as Andrew Bailey recently said that they were “under review” while emphasizing that the Bank would need to engage in a communications exercise to prepare for the measure. The fact there’s been no chat of negative rates in these minutes suggests that the mild shock to the economy and improving global risk appetite has meant the MPC sees no need to begin to lay the groundwork for the possibility of negative rates just yet.
The essence of today’s MPC is that although the initial shock to the economy is currently looking to be not as bad as expected, it’s far too early for any victory laps for policymakers, as we have little idea what shape the recovery will take.
The minutes pointedly noted that it was difficult to make any inferences about the pace of the recovery. If Q3 or Q4 see renewed restrictions or some other drag on growth, the BoE will be forced to look into its toolkit once more. Until then, the MPC seems to think it’s “so far so good”.
BoE QE compared to BOJ, Fed, ECB: Lines show evoltution of central bank balance sheets as a percentage of GDP
Author: Ranko Berich, Head of Market Analysis