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Bank of England says Negative Rates Are Not Coming, GBP/USD Jumps

Bank of England says Negative Rates Are Not Coming, GBP/USD Jumps

Justin McQueen, Strategist

GBP/USD Price Analysis & News

  • BoE Says Negative Rates Are Not Coming, GBP/USD Jumps
  • BoE optimistic on Growth Outlook
  • Inflation expected to rise sharply towards 2% in Spring

BOTTOM LINE: Bank of England left policy unchanged as expected, with the bank rate remaining at 0.1% and APF target at £895bln. The main focus had been on its consultation with the PRA over the feasibility of negative rates, in which the BoE stated that while it is appropriate to get ready for negative rates if needed, they do not intend to signal that this policy tool will be coming in the foreseeable future.

Growth: The BoE stated that while Q1 growth will likely see a larger hit than in Q4, the economic damage will be less severe than the first lockdown in March 2020.

Inflation: MPC sees inflation rising sharply towards 2% in Spring as base effects and the impact of the unwind in VAT reductions underpin.

MPC Forecast: Feb 21 vs Nov 20

Growth Forecast

End 2021: UK GDP 5% (downgraded from 7.25%)

End 2022: UK GDP 7.25% (upgraded from 6.25%)

End 2023: UK GDP 1.25% (downgraded from 1.75%)

CPI Forecast

End 2021: UK CPI at 2.0% (unchanged)

End 2022: UK CPI at 2.25% (upgraded from 2.0%)

End 2023: UK CPI at 2.0% (unchanged)

GBP Reaction: The initial move had been in line with what option markets had implied with GBP rising from 1.3569 to 1.3642. The rise stemming from the BoE optimistic judgement on growth, alongside playing the possibility of taking interest rates negative. Similarly, EUR/GBP made a firm break below the 0.8800 handle.

GBP/USD Chart: Intra-day Time Frame

Bank of England says Negative Rates Are Not Coming, GBP/USD Jumps

Source: Refinitiv

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.