This coming Thursday 6 August sees the Bank of England’s latest policy decisions alongside a press conference led by Governor Andrew Bailey.
What does it mean for markets.
While markets are not expecting any change to either the policy interest rate at this meeting (currently at 0.1%), or the quantitative easing programme (increased in June to £745bn), there is still a chance for a dovish surprise on the overall commentary and tone from the Bank. With a more fragile global recovery given the risks of a second Coronavirus wave threatening the pace and scale of the UK’s exit from its economic lockdown, this may more than likely tip the Bank enough to keep all of its policy options open. This includes the on-going discussion at the Bank regarding its review of the effective lower bound for interest rates which is expected later in the year.
What does Brooks Macdonald think.
Throughout the Coronavirus pandemic, it has been the combination of monetary and fiscal policy working together which has had some success in limiting the worst-case impacts onto the economy. The UK’s fiscal response has been particularly important, but the Bank will be mindful that a key plank of the government’s fiscal response, the workers’ furlough scheme, is due to stop at the end of October. With this removal of fiscal stimulus, we would expect this to put additional pressure on the Bank to maintain an accommodative monetary bias on balance, if only in order to take up the slack as policy makers seek to safeguard risk appetite for businesses and consumers.