The BOE announced a further £ 100 billion ($ 131.4 billion) extension of its bond purchase program in June, bringing the total value of the Asset Purchase Facility (APF) to the central bank to £ 745 billion.
The Bank also kept its main lending rate at 0.1%, having cut rates to twice 0.75% since the start of the coronavirus pandemic.
While the current stance of accommodative monetary policy is expected to remain unchanged, the Monetary Policy Committee’s new quarterly projections may include a change in tone.
Alan Custis, head of UK equities at Lazard Asset Management, suggested that May’s projection of a V-shaped recovery now looks “out of step” with current market expectations.
“We would expect the Bank of England to revalue its GDP (gross domestic product) expectations for 2020, but at the same time lower its expectations for 2021, as the risk of a second wave of viruses and new disturbances suggest she had been overly optimistic. Custis said Wednesday.
“In the longer term, the recovery of the UK economy will likely be prolonged and at a lower level than other economies, as the effects of leaving the EU will also weigh on expectations. ”
The UK is currently involved in tense talks with EU leaders with the aim of establishing a new trading relationship. If negotiations fail, the UK would face a sudden exit from its no-deal transition period at the end of the year, a scenario widely believed to worsen the economic damage from the pandemic. The next round of talks is scheduled to begin on August 17.
“We believe that the current level of the wide GBP implies that an FTA (free trade agreement) between the UK and the EU-27 (free trade agreement) concluded by the end of the year is about as likely as it is not (in terms of implied market odds), “Stephen Gallo, European director of foreign exchange strategy at BMO Capital Markets, said in a note Tuesday.
“The Bank’s growth and inflation assumptions (H2 2020 and FY 2021) will likely change, but the high level of uncertainty surrounding virtually all forecasts means market participants are likely to assign very low weights to their importance. “