- At their May meeting, Boeing voted unanimously (0-0-9) to keep rates unchanged with the official bank rate, down 0.10% from its historic low. However, Boeing surprised markets by splitting the 2-0-7 vote to facilitate their asset purchase as Michael Sanders and Jonathan Haskell raised 100 billion in QE.
- Although the BoE refrained from further easing at its May meeting, it's worth noting that further easing is expected - in the form of a further increase in QE - as soon as its next meeting on June 18th.
- By increasing QE in June, the BoE will be able to continue its asset purchases which are otherwise likely to hit their current £200 billion target (from March) by the summer.
- With the BoE's Official Bank Rate at extreme lows (0.10%), increasing QE remains the most logical approach for ongoing easing from the central bank, and hence remains the market's base case scenario given the UK's economic outlook.
- According to the BoE's own estimates, the UK economy is likely to plunge 25% for Q2 2020 with the Unemployment Rate more than doubling to 9%. For the whole of 2020, GDP is likely to drop by 14%, although the bank expects a swift recovery in 2021 with a bounceback of 15%. For such a scenario to develop, significant monetary and fiscal support will be required - making additional increases to the BoE's asset purchase programme a foregone conclusion.
- Although the BoE's expectations for a fairly rapid recovery would suggest further aggressive action from policymakers, many analysts have questioned the BoE's outlook, believing the BoE's central scenario, including a bounceback in growth in 2021 and a return to 2% inflation by 2022 to be too optimistic.
- All in all, the BoE's meeting was on the more optimistic side and has supported GBP in the initial aftermath of their announcement. However, GBP's long-term bias remains firmly bearish as significant uncertainty remains regarding both the UK's coronavirus outlook and Brexit. As such, we continue to expect GBP to find significant offers at key levels of resistance as the currency maintains its bearish fundamental bias.
GBP Tradable Sentiment Shifts
5/07/2020 03:41:00 PM