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Market Update

The Bank of England is expected to signal that it is getting ready to pump yet more stimulus into Britain’s economy as it heads for a jump in unemployment and a possible Brexit shock.

The BoE has already cut interest rates to a record low 0.1% and ramped up its bond-buying programme to almost $1 trillion (771 billion pounds) to soften the impact of the coronavirus shock.

It has enough firepower to keep buying bonds until the end of 2020, so investors are expecting only a signal of intent to do more at the end of its September meeting.

Anthony O’Brien, European rates and currency strategist at First State Investments, said one or two of the nine BoE monetary policymakers might vote for more bond buying as the BoE, like other central banks, turns warier about the outlook.

Britain suffered the biggest economic contraction among Group of Seven nations between April and June, slumping by 20%.

Monthly output by the end of July was 12% below its pre-COVID level, but the bounce-back is likely to slow as the government phases out its huge job protection scheme. At the same time, trade talks with the European Union risk collapse.

The next BoE’s bond-buying expansion is expected in November. The Monetary Policy Committee member most likely to have voted for an increase this week is Michael Saunders, who has said it is “quite likely” that the economy will need more stimulus.

Others have warned the economy could take longer to recover its pre-crisis size than the BoE’s forecast of the end of 2021.

Only the central bank’s chief economist, Andy Haldane, has sounded optimistic about the recovery.

Investors will watch for more clues in Today’s statement about the chance of the BoE resorting to negative rates.

This does not bode well for the value of Sterling and points towards an uncertain time ahead.

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