BOE leaves bank rate unchanged at 0.10%

Author: Justin Low | Category: Central Banks

BOE announces its latest monetary policy decision - 6 August 2020


  • Prior 0.10%
  • Bank rate votes 0-0-9 vs 0-0-9 expected
  • Asset purchase program total £745 billion
  • Will continue to minor the situation closely
  • Stands ready to adjust monetary policy accordingly
  • UK GDP expected to have been over 20% lower in Q2 2020 than Q4 2019
  • Higher frequency indicators imply that spending has recovered significantly
  • Projections assume that direct impact of the virus will dissipate gradually
  • Housing market activity appears to have returned to close to normal levels
  • Doesn't intend to tighten policy until there is clear evidence that significant progress is being made in eliminating spare capacity and 2% inflation is sustained
  • Risks to the outlook are judged to be skewed to the downside
  • Sees UK GDP at -9.5% in 2020 (previously -14%)
  • Sees UK GDP at +9% in 2021 (previously +15%)
  • Sees UK GDP at +3.5% in 2022 (previously +3%)
  • Sees UK CPI at 0.25% in 2020 (previously 0.60%)
  • Sees UK CPI at 1.75% in 2021 (previously 0.50%)
  • Sees UK CPI at 2.00% in 2022 (previously 2.00%)
There are positives and negatives to take away but on the balance of things, it is more skewed to the former by the slightest bit. But in terms of key policy decisions, nothing has really changed as the BOE reaffirms their commitment to support the economic recovery.

In terms of positives, they see that the economic downturn isn't as severe - the language and current year projection show that - and that is something for bulls to chew on.

In terms of negatives, it's mostly on the inflation narrative over the next few months. They also see unemployment rising materially later in the year, with the unemployment rate expected to increase to 7.5% by the end of 2020.

However, policymakers still see a modest recovery in inflation next year so that's another positive takeaway but for now, it means more accommodative policy will stay for longer.

On the issue of negative rates, they side-stepped that by saying that they have other instruments to tweak such as asset purchases and forward guidance for now.

The pound is rising to fresh session highs against the dollar following the decision, with cable up to 1.3180 from around 1.3130 before the announcement.

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