Bank of England rate preview: MPC look set to ease as lockdown looms
The Bank of England expected to ease further as a second national lockdown sparks expectations of another economic contraction.
When and where?
The Bank of England (BoE) will conclude their latest virtual monetary policy meeting at midday, on Thursday 5 November 2020.
Tune in to IGTV’s live BoE announcement and analysis at 11:55 AM BST on Thursday in the IG platform.
Will second-lockdown bring about bout of easing?
The forthcoming Bank of England monetary policy decision couldn’t have been any more timely, with the second nationwide lockdown also set to take effect on Thursday. The exact economic impact this forthcoming period of contraction remain unclear for now, yet the Monetary Policy Committee (MPC) will be well aware of just how painful this will be given the sharp declines in March (-5.8%) and April (-20.4%).
With that in mind, there is little doubt the bank will need to remain supportive at this time of need. According to the latest Reuters poll, we should expect a fresh £100 billion added to the asset purchase facility. That would take the total size of the package to £825 billion.
From an interest-rate perspective, few are expecting to see the MPC implement a rate cut to finally push into negative territory. BoE Governor Andrew Bailey has stated that he saw negative interest rates as working better within a sustained recovery rather than the economic contraction expected in the coming month.
As such, while we are unlikely to see negative rates implemented this time around, markets will no doubt be looking for further clarification on when such a move could come to pass.
Where now for the pound?
GBP/USD has taken a step back over the past week, with the wider uptrend seen over the past month coming into question. The decline seen since the rally into 61.8% Fibonacci resistance around $1.3174 has subsequently taken us into the critical $1.2861 mid-October low.
A break below that support-level would point towards a potential reversal for GBP/USD, bringing about an extension of the sell-off seen in early September. As such, the reaction to this level will be crucial in determining the ongoing outlook for this pair.
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