The Bank of England is holding fire for now but the policy bias is heavily tilted towards more easing. The BOE are clearly in the driving seat and steering expectations towards additional monetary measures. BOE governor King is acting as the stalking horse for extra QE and more gilt purchases should be on the way very soon. The BOE are worried about negative trends they can see in the economy that need pre-emptive attention pretty soon. They are not going to drag their feet for too long at the expense of delaying the recovery even further into the future. The government’s austerity cuts are hitting the economy hard. Consumers are on the ropes, reeling from the very sharp squeeze on real incomes. Business confidence remains at a low ebb, hampering new investment intentions. Export prospects are being held back by Eurozone recession and the global slowdown. And credit conditions remains tight thanks to a defensive UK banking sector. The BOE have no alternative than to open up the sluice-gates and unleash a new flood of liquidity into the economy to help foster recovery prospects. The odds are that the QE bucket is going to be a lot larger than the market anticipates, with the lock-gate left open for more to come when Carney takes over from King. Britain is back in its third recession in five years and the economy is in trouble. The pound might enjoy some short term relief in the absence of extra QE this month, but the prospect of more easing to come will continue to drag sterling lower. A sustained break below USD1.50 is on the cards soon and the longer term target should see a return to USD1.35 in the coming months.
Highlights
- BANK OF ENGLAND SAYS LEAVES QE ASSET PURCHASE TOTAL UNCHANGED AT 375 BLN STG (REUTERS POLL 375 BLN STG)
- BANK OF ENGLAND SAYS HOLDS BANK RATE AT 0.5 PCT (REUTERS POLL 0.5 PCT)
- BOE MAKES NO STATEMENT AFTER MONETARY POLICY DECISION
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