Marketing No Comments

UK economy on course for V-shaped recovery, says Bank of England economist

UK economy is on track for a sharp V-shaped recovery thanks to a faster-than-expected rebound but “considerable” risks remain, according to the Bank of England’s chief economist.

Andy Haldane, who also sits on the Bank’s interest rate-setting committee, said the recovery in the UK and globally had come “sooner and faster” than expected.

In a webinar speech on Tuesday, Mr Haldane said the UK economy was benefiting from a rebound in consumer spending since lockdown restrictions have begun to ease.

He said: “It is early days, but my reading of the evidence is so far, so V.”

He added: “The recovery in both the UK and global economies has come somewhat sooner, and has been materially faster, than in the Monetary Policy Committee’s May Monetary Policy Report scenario – indeed, sooner and faster than any other mainstream macroeconomic forecaster.”

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

But he said there was the risk of a “vicious cycle” in the economy if unemployment proves to be higher than expected and warned against a return to the mass youth unemployment seen in the 1980s.

He said: “Risks to the economy remain considerable and two-sided.

“Although these risks are in my view slightly more evenly balanced than in May, they remain skewed to the downside.

“Of these risks, the most important to avoid is a repeat of the high and long-duration unemployment rates of the 1980s, especially among young people.”

His comments come after the Bank recently said it now expects gross domestic product to tumble by 20% in the first half of the year, which is far less than the 27% it predicted in its May forecast.

But governor Andrew Bailey warned at the time against getting “carried away” by signs the recession may not have been quite as steep as it expected, with the Bank launching another £100 billion of quantitative easing (QE) to help boost the economy.

Mr Haldane was the only one on the nine-strong Monetary Policy Committee to vote against increasing QE in the June meeting.

In his speech, he said if the economy continues recovering on a similar path as lockdown measures ease further, then the loss in annual GDP could be far lower than first feared, at 8% against 17% forecast in May.

But he cautioned some of this may be down to pent-up demand, as well as the massive Government support for households and businesses through the scheme to furlough workers on 80% pay.

With nine million workers currently furloughed, he said there was a risk of soaring unemployment when the Government support measures end, which could impact the path of recovery.

Mr Haldane said he remained “open-minded” about more action to boost the economy.

Official figures also on Tuesday showed the economy shrank by more than first thought between January and March, down 2.2% – the largest fall since 1979.

Data has shown GDP contracted by a record 20.4% in April, but Mr Haldane said this was “ancient history” with the UK and global economy now fully in the recovery phase of the crisis.

Source: Express & Star

Marketing No Comments

Bailey: Bank of England will reverse QE before raising rates

Bank of England governor Andrew Bailey believes the Bank of England must begin reversing quantitative easing before hiking interest rates from record lows.

Bailey said today that a reveral of QE should come before lifting rates from their historic lows of 0.1 per cent, signalling an upending of long-standing Bank of England policy.

Bailey said the time for such action was not now, but that the high level of central bank asset purchases “shouldn’t always be taken for granted”.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

“When the time comes to withdraw monetary stimulus, in my opinion it may be better to consider adjusting the level of reserves first without waiting to raise interest rates on a sustained basis,” Bailey wrote in an article for Bloomberg.

Last week the Bank of England announced a further £100bn of stimulus to take its bond-buying target from £645bn to £745bn for 2020. However, it said the rate of QE would decrease for the rest of the year.

The Bank’s monetary policy committee slashed interest rates to 0.1 per cent back in March to combat coronavirus.

Bailey’s comments today signal a shift away from his predecessor Mark Carney’s strategy.

Carney had said the Bank would raise rates before trying to sell bonds back to the market.

But Bailey said today he did not want high Bank of England purchases of government bonds to become a long-standing scenario.

“Elevated balance sheets could limit the room for manoeuvre in future emergencies,” he said.

The Bank of England has purchased huge amounts of government bonds since the start of the coronavirus crisis.

By Joe Curtis

Source: City AM

Marketing No Comments

We must be ready for further stimulus, says Bank of England’s Andrew Bailey

The Bank of England and other policymakers must be ready to take further action to help the UK’s economy because of the risk of the coronavirus shutdown causing long-term damage, governor Andrew Bailey has said.

“We are still very much in the midst of this,” Bailey told broadcasters today.

His comments come after new data showed the UK’s economic output tumbled over 20 per cent in April, suffering the largest drop since records began in 1997 as the coronavirus lockdown brought many sections of the economy virtually to a halt.

“We hope that will be as small as possible but we have to be ready and ready to take action, not just the Bank of England but more broadly, on what we can do to offset those longer term damaging effects,” Bailey said.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

While the fall in April – when the economy spent a full month under lockdown – was dramatic, the big question was how much long-term damage this would inflict on Britain’s economy, he said.

Before the Open newsletter: Start your day with the City View podcast and key market data

Bailey said the record drop in GDP was close to the central bank’s expectation for the month, and reiterated his view that some early signs of economic recovery have emerged since then.

The Band of England is expected to announce an expansion of at least £100bn in its bond-buying firepower when its Monetary Policy Committee meets next week in order to limit the damage caused to the economy by the Covid-19 pandemic.

The central bank has already spent the bulk of the record £200bn expansion to its asset-buying programme, which was launched in March.

While the BoE has reduced interest rates to an all-time low of 0.1 per cent in a bid to mitigate the economic impact of the virus, it has not been willing to follow other central banks in setting negative rates.

This decision means that the Bank’s main tool for combatting the coronavirus-induced recession is its bond-buying programme.

Speaking earlier this week, Bailey said the recession triggered by the pandemic will be “different” to others.

“If there is any such thing as a normal recession… this one will be different. There will be elements of a faster recovery, because the first stage of the recovery is literally lifting restrictions and allowing people to go out,” Bailey said at a panel hosted by the World Economic Forum.

By Anna Menin

Source: City AM

Marketing No Comments

BoE not remotely close to decision on negative rates, says chief economist

The Bank of England’s chief economist has said the bank is not remotely close to any decision on taking interest rates below zero to cope with the pandemic.

Andy Haldane said the key factors for the BoE to consider were the consequences of negative rates for banks and lenders, which would squeeze margins.

“Those are the aspects that we’ll look at,” Haldane said during an online discussion organised by the Confederation of British Industry on Tuesday.

“To be clear, reviewing and doing are different things and currently we are in the review phase and have not reached a view remotely yet on the doing.”

Since the start of the coronavirus outbreak, the bank has slashed its main rate to a record low of 0.1 per cent, prompting questions about whether it will cut into negative territory to stimulate the economy further.

It would mean banks are charged a small amount for keeping their money with their country’s central bank. The European Central Bank’s (ECB) deposit rate is currently minus 0.5 per cent.

Last week, BoE governor Andrew Bailey said it would be “foolish” to rule out negative interest rates. He has previously argued against them but admitted he had changed his position.

He was keen to highlight that the Bank is not saying it will cut rates further: “We’re not ruling it in but we’re not ruling it out.”

Haldane also said the recent economic data was coming in a “shade better” than a scenario published by the bank earlier this month.

“This is perhaps still a V but perhaps a fairly lop-sided V,” he said, referring to the shape of the economy’s downturn and recovery.

“The risks to that probably…lie to the downside rather than the up and as I say, a rather more protracted recovery even than the one that I have mentioned.”

By Angharad Carrick

Source: City AM

Marketing No Comments

Bank of England not ruling out negative interest rates

Government bonds have been sold in Britain for the first time with a negative yield.

And the Bank of England has admitted it would be “foolish” to rule out cutting interest rate to below zero.

The negative yield bond (a £3.8billion three-year gilt auction with an interest rate of -0.003 per cent) effectively means investors are paying lend money to fund the Government as it deals with the financial impact of the coronavirus pandemic.

And Bank of England governor Andrew Bailey said how low the cost of borrowing could go would be kept under “active review”.

He said: “We do not rule things out as a matter of principle. That would be a foolish thing to do. But that doesn’t mean we rule things in either.:

Minimal or negative interest rates deter savers with the intention of them spending what money they have to stimulate the economy.

Tim Watkins, managing partner of Shurdington-based accountants Randall & Payne, said: “Another first!. Britain had never sold a government bond with a negative yield until Wednesday.

“The interest rate is 0.75 per cent but the price investors paid for the bonds was more than they will receive when the bond is repaid.

“A first for Britain but we join Japan, Germany and some others. It doesn’t mean investors will make a loss as bonds are traded but it’s a position no one would have imagined a few months ago.”

He continued: What does it signal? It’s an indication, if another was needed, that there could be a major recession coming, central banks want to own safe assets in these circumstances and our debt is considered safe.

“It’s a relief at the moment with such a borrowing requirement that Britain is considered safe and the cost of borrowing is low.

“If that were to change it would add even further to the debt mountain we could have when this is all over.”

Martin Day, director of The Bespoke Banking Consultancy in Gloucester believes the spectre of negative interest could encourage spending as the economy shrinks.

He said: “It seems the policymakers will come under more pressure to take action to boost the economy as the UK sells bonds with a negative yield for the first time.

“The sale does reflect rising expectations that the Bank of England will increase its £200billion bond purchase shortly.

“Bank of England governor Andrew Bailey recently told MPs that the possibility of negative rates is being kept under review.

“This move could be used to urge corporates and companies to spend rather than hold funds in bank accounts.”

By Rob Freeman

Source: Punchline Gloucester

Marketing No Comments

Bank of England ‘not contemplating’ negative interest rates, says governor Andrew Bailey

Bank of England governor Andrew Bailey has said Threadneedle Street is not considering cutting interest rates to below zero.

The governor said that it would be unwise to rule anything out, “particularly in these circumstances,” in an online question and answer session with the Financial Times.

Yet he said: “It is not something we are currently planning for or contemplating.”

His comments come after deputy governor Ben Broadbent said the Bank was open-minded about its next steps. He said of negative interest rates: “These are the balanced questions the committee has to think about.”

Although once unimaginable, negative interest rates have been put in place in various central banks around the world over the last decade. The European Central Bank (ECB), for example, charges banks to hold money with it in an effort to force them to lend.

Negative rates come with pros and cons. They help spur lending by penalising banks for sitting on money. But they also limit the profits banks can make through lending and the interest on savers’ deposits.

The Bank of England slashed its main interest rate to 0.1 per cent, its lowest ever level, in March.

Bailey said that one of the main obstacles to cutting interest rates into negative territory would be the optics of the complex move.

“I think from a communications point of view, and therefore from a reaction and expectations point of view, it is a very big step.”

He said it must be realised that negative interest rates cause banks problems. The Eurozone’s biggest banks have long complained that the policy hurts their profits.

Should the Bank decide to unleash more stimulus, most analysts think it will ramp up its £645 billion quantitative easing (QE) programme. Under QE, the Bank creates digital money and uses it to buy bonds – mainly government Gilts – in the secondary market.

The BoE stopped short of launching more bond-buying at its last meeting but could do so in June.

By Harry Robertson

Source: City AM

Marketing No Comments

Bank of England holds base rate at 0.1% and warns of sharp recession

The Bank of England has held its base rate at 0.1% but warned it expects a sharp recession in the first half of the year as a result of the coronavirus restrictions.

In its May monetary policy report, the bank noted that the spread of Covid-19 and the measures to contain it were having a significant impact on the United Kingdom and many countries.

“Activity has fallen sharply since the beginning of the year and unemployment has risen markedly. Economic data have continued to be consistent with a sudden and very marked drop in global activity,” it stated.

However, the Bank of England also highlighted that there were some “tentative signs of recovery” in countries that were starting to relax restrictions and that financial markets had recovered in part.

And indicators of UK demand have generally stabilised, albeit at very low levels, in recent weeks after “unprecedented falls” during late March and early April.

Banking stability

The central bank believes the core banking system has “more than sufficient” capital to absorb expected losses and that there will be capacity to provide credit to support the UK economy.

In its scenario, it is anticipating that overall economic activity (GDP) will fall 14% in 2020 but rebound by a similar amount in 2021, although it will not reach its pre-coronavirus size until the middle of next year.

Household spending is expected to follow a similar pattern to GDP, but consumer savings is anticipated to rise sharply this year but then fall back in the next two years.

This will have an impact on inflation, as will falls in oil prices, with inflation potentially hitting 0.6% over 2020 as a whole and reaching zero at the end of the year.

Unemployment is predicted to double to around 8% in 2020 but return to around the pre-coronavirus position in 2022.

The scenario also assumes the UK will complete an orderly free trade agreement with the European Union at the end of the year, however this is not certain and disagreements during negotiations have been public from both sides so far.

Kevin Brown, savings specialist at Scottish Friendly, said: “The Bank of England’s report on the economy makes for bleak reading, but it is still holding out hope for a reversal of much of the economic misfortune the country is suffering thanks to coronavirus, by the middle of next year.

“Markets have largely responded to the crisis already and much of this fresh economic data is already priced in. It is impossible to predict a bottom, but one thing’s for sure, savers won’t find succour in a savings account paying 0.5% interest.

“It’s a tough time for savers out there and many are being caught out by the speed at which rates on cash accounts are changing. The signals given out by the Bank of England suggest the base rate is going nowhere and this should be a catalyst to anyone with a savings pot to make sure they’re getting the best out of it, by considering ways to maximise their potential returns.

“Many high street banks, building societies and challenger banks are cutting rates but there can still be ways to generate above inflation returns by exploring alternatives such as regular savings accounts, longer fixed-rate ISAs and stocks and shares.”

Written by: Owain Thomas

Source: Your Money

Marketing No Comments

Bank of England rate preview: markets braced for GDP forecasts

Andrew Bailey hosts his second BoE meeting, but the volatility could come from forecasts rather than any shift in their monetary policy framework.

When and where?

With the Covid-19 crisis keeping everyone locked up, the forthcoming Bank of England (BoE) monetary policy meeting will be virtual, taking place on Thursday 7 April 2020. Most notably, this announcement will take place at 7am local time, rather than the usual midday timing.

Will we see any change to monetary policy?

The coronavirus crisis has seen central banks across the globe push the boat out in a bid to minimise the fallout from global lockdowns that have affected businesses and individuals alike.

In the UK, Governor of the BoE Andrew Bailey didn’t mess about, slashing interest rates to 0.10% and expanding the quantitative easing (QE) program by £200 billion in his first week as the governor. That QE programme stands at £645 billion, and remains a tool which could be expanded when it is deemed necessaryto support the governments push to mitigate the virus fallout. Some have speculated that the timing of this meeting (pre-market open) could highlight a potential market moving announcement such as further QE in the offing. On the interest rate side of things, there is arguably little left to benefit from implementing lower rates, with the restrictions on movement and businesses inhibiting the ability to borrow and invest.

With that in mind, markets are currently pricing in a 99% chance that the committee will keep rates steady at the forthcoming meeting.

What should we look out for?

Perhaps the most interesting part of the meeting comes in the form of the forward looking guidance on where inflation and particularly growth could be in the quarters ahead.

With UK prime minister Boris Johnson showing few signs of reopening the economy in the coming weeks, the global growth picture for second quarter (Q2) is dour. For markets, this expectation of huge economic contraction could see the pound hit hard, with some looking for a figure in the -35% region for the quarter. From an inflation perspective, we are seeing global disinflation take hold, and that is likely to be reflected in forecasts. Remember that low inflation also means looser monetary policy for the foreseeable future irrespective of the coronavirus response needs.

Aside from the growth and inflation forecasts, markets will also be on the lookout for guidance on how the BoE sees the recovery playing out. Thinking back to the Federal Reserve (Fed) and European Central Bank (ECB) meetings from last week, there has been a clear focus on avoiding expectations of a sharp v-shaped recovery for growth, with the road back to health likely to be drawn out given the speculation that it could take over a year to create a vaccine or cure for this virus.

Where now for the pound?

The pound has been on the rise since its mid-March low, with the pair ultimately reaching resistance at the 200-day simple moving average (SMA) level. That has proven a key roadblock to further gains, with the second attempt to break higher once again faltering at that indicator.

This could be a bearish signal coming into play, with the rally seen over almost two-months looking like a potential retracement and precursor to further downside. Much of that sentiment will be driven by wider market movements, with GBP/USD looking remarkably like the FTSE 100 given the inverse correlation between the dollar and global stocks. Nevertheless, there is a chance we could see the pound suffer if forecasts signal potentially a huge decline in Q2 gross domestic profit (GDP).

With that in mind, we could ultimately top out at the 200-day SMA, with a breakdown below 1.2247 providing a bearish reversal signal. As such, the wider outlook will be determined by the ability to break either 1.2247 or 1.2648.

By Joshua Mahony

Source: IG

Marketing No Comments

Bank of England brings forward release time of May 7 rate decision

The Bank of England said on Friday it will release the result of its next Monetary Policy Committee meeting at 7 a.m. (0600 GMT) on May 7, rather than at the usual release time of 12 p.m.

“This is to accommodate the joint publication with the interim Financial Stability Report,” the BoE said.

As well as the MPC’s decisions on interest rates and bond-buying and its new economic forecasts in a quarterly Monetary Policy Report, the BoE has brought forward a meeting of its Financial Policy Committee to assess the impact of the coronavirus pandemic on the finance industry.

BoE Governor Andrew Bailey will brief reporters after the decision, and the contents of the briefing will be made public at 0900 GMT.

The BoE cut rates twice in March to a new low of 0.1% and ramped up its government bond-buying by a record 200 billion pounds. It is expected to hold off on fresh monetary policy action next week, according to a Reuters poll of economists.

Reporting by David Milliken; Editing by William Schomberg

Source: UK Reuters

Marketing No Comments

UK economy will suffer extremely large hit from coronavirus, warns rate-setter

Britain will suffer an “extremely large” hit to spending in the economy from the coronavirus lockdown – and monetary policy and Government actions cannot fully offset the impact, a Bank of England policymaker has warned.

Silvana Tenreyro – one of the Bank’s nine Monetary Policy Committee (MPC) members – also cautioned the UK recovery is likely to be “less V-shaped than one would like”, suggesting the bounce-back may not be as immediate as previously hoped.

In a speech broadcast online, she said the Bank stood ready to “do whatever it can” to help lessen the blow to households and businesses.

But she stressed monetary policy cannot “tackle such difficulties alone” and warned that even together with the Government’s mammoth emergency support, there will still be rising unemployment and shrinking output.

Ms Tenreyro said: “The data we have so far suggest that the drop in aggregate spending already taking place will be extremely large.”

She added: “Given the scale of the shock, it will not be possible to avoid further consequences for the economy.

“There will be a fall in employment where businesses fail or workers are made redundant.

“These occurrences should be ameliorated by the policy measures that have been put in place, but will not be prevented in full.”

She stressed that even without the lockdown and restrictions put in place, gross domestic product would have fallen sharply as Britons increasingly opted to stay at home.

“The fall in demand was clear in high-frequency indicators such as restaurant bookings and retail footfall, which fell sharply even before the Government’s decision to close restaurants and shops,” she said.

The Bank is forecasting inflation to fall below 1% from 1.7% currently in the next two months as fuel costs plunge thanks to crashing oil prices.

But while Britons will see rises in the cost of living ease, they will be knocked by falling wage growth, according to Ms Tenreyro.

She said: “Despite the policy responses, we will not be able to avoid a rise in unemployment, which will weigh on real wage growth across the economy.”

While some firms will see a rise in demand by offering alternatives, such as online food and grocery services to replace cafes and restaurant, she said this will be outweighed by the overall fall in spending due to falling incomes and consumer uncertainty.

She said: “Covid-19 is having unprecedented effects on all of our lives.

“The MPC, co-ordinating closely with other policymakers in the Bank and in government, will do whatever it can to minimise the economic disruption that the crisis could cause for households, businesses and financial markets.”

The Bank has already slashed interest rates to a new all-time historic low of 0.1%, from 0.75% previously, and unleashed another £200 billion of quantitative easing (QE) among a raft of actions to help the economy weather coronavirus.

But the Bank has already previously said it sees little benefit in taking rates below zero, suggesting it will have to look to more QE or radical options if further monetary support is needed.

Ms Tenreyro admitted the MPC is in unprecedented territory with the current crisis.

“The nature of the economic shock from Covid-19 is very different from those to which the MPC has previously had to respond,” she said.

Source: Express & Star