The UK’s central bank has projected rising unemployment and a shrinking economy
Bank of England warns of a UK economic slump
- BoE’s assessment of the current crisis is pretty dire, with the forecast of the economy falling by 14% in 2021
- A couple of members voted to increase QE by £100bn
- We believe the risks for the economy and the markets are more skewed to the downside than upside
The Bank of England’s assessment of the current crisis is pretty dire, with the forecast of the economy falling by 14% in 2021 seemingly a downgrade from before. They also fear unemployment could be more persistent with demand in the economy set to be weak for around a year after the lockdown ends. In the meantime the base rate has been kept at the historic low of 0.1% and QE target maintained at £645bn.
However, the overall tone from the voting members is one of caution and fear the risk to the economy is further to the downside. We saw a couple of members vote to increase QE by £100bn and if data in the coming weeks prove to be weaker then we can expect an expansion of QE in an upcoming meeting.
Much like the BoE, we believe the risks for the economy and the markets are more skewed to the downside than upside and the markets should welcome this morning’s announcement. Upon the release, Sterling showed a small appreciation while the stock market made marginal gains. On a positive note, policy makers do believe that on the other side of this crisis, the recovery will be quicker than the financial crisis, so there is some hope. Yet this crisis is different than others, as talks of second and third waves of this pandemic could quickly change that.
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