Hawkish BoE meeting sends Sterling lower
On the surface, the two main developments out of the BoE meeting yesterday were very positive. Analysts had predicted an optimistic tone and the BoE delivered one. However, the signal for no interest rate rise before 2023 was heard loud and clear and opened the door to £ weakness.
Although the BoE reduced the scale of quantitative easing (£4.4bn to £3.4bn), the statement reads 'the decision should not be interpreted as a change in the stance of monetary policy'. It also means the BoE are able to extend the overall purchases over a longer period, which is likely to happen. This is not positive because it's clear interest rates will only begin to normalise once the QE programme has finished, anticipated to be in 2023.
Whilst the Pound took a slight hit on the overall news, most of it puts the UK and £ in good stead for the upcoming months. Economic forecasts show the economy will now recover to pre-Covid levels this year. GDP projections have been given a sizeable boost from 5% to 7.25%. The unemployment rate has been given a supportive downgrade from 7.8% to 5.4% for when furlough ends. But for now the Pound remains flat and is waiting for that spark to ignite it back into life again.