Though Bank of England (BoE) said the hit on economy may not be as severe as initially feared, it does not mean the recovery will be quick. GBP/USD could continue its downtrend.
- Bank of England Monetary Policy Committee unanimously voted to keep interest rates unchanged at the historic low of 0.1%.
- In addition, BoE voted to pump an additional £100 billion into the UK economy. The extra monetary stimulus – known as quantitative easing (QE) – will raise the total size of the Bank's asset purchase programme to £745 billion.
- The central bank sounded more upbeat about the economic outlook than in May. BoE are also moving to slow the pace of asset purchases.
- UK’s economy shrank by 20.4% in April while labour data showed that UK payrolls fell by 600,000 between March and May.
- Furthermore, inflation which is measured by consumer price index (CPI) fell to 0.5% in May from 0.8% in April which is below BoE’s target of 2%.
- Even though the central banks’ MPs felt that the outlook isn’t as bad as they feared, the economic growth may remain tepid due to 2 main reasons extending beyond economics:
1) The fear of a 2nd wave of infections will hold back a complete recovery as social distancing will remain in place until a vaccine is found.
2) UK-EU trade negotiations on post-Brexit will continue to create uncertainties for businesses.
- GBP/USD could move lower towards the 1.2200 price level as uncertainty continues to rise.
Fullerton Markets Research Team
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