The Bank of England has opted to not cut interest rates into negative territory and has done so with a unanimous vote of the Monetary Policy Committee (MPC).
The initial decision and subsequent guidance from the Bank has prompted a rally in the British Pound against the Euro, Dollar and other major currencies. The Pound-to-Euro exchange rate jumped to new eight-month highs at 1.1425 following the decision, the Pound-to-Dollar exchange rate recovered back to 1.3676
Justifying the decision to keep policy settings unchanged, a statement from the Bank revealed UK economic growth is projected by the Bank to recover rapidly towards pre-Covid levels over 2021, as the vaccination programme is assumed to lead to an easing of Covid-related restrictions and people’s health concerns.
The Bank also indicated it was surprised by the strength in economic performance towards the end of 2020, noting it expects UK GDP to have risen a little in the final quarter of 2020 to a level around 8% lower than in the final quarter of 2019.
Across the Pond, today’s focus is on the latest US jobs report for January, with optimism rising that today could see the losses seen in the December report reversed. Seven consecutive months of job gains came to a shuddering halt at the end of 2020, as the US economy shed 140k jobs.
Coming on top of a similarly negative ADP payrolls report, a few days before the December numbers pointed to a US economy that appears to be recovering from an output point of view, but where the jobs market is labouring behind by quite a significant amount. Consumer spending, which has been a big part of the US economy has stalled in recent months, reflecting the uncertain economic outlook for a lot of US services jobs, which bore the brunt of the December losses.