UK’s economy could be hit worse than what its central bank expects. Short GBP/NZD?

  • Bank of England held interest rates at 0.1% but said it stands ready to take further action should the economic crisis caused by the coronavirus pandemic continue to deteriorate.
  • With a majority of 7-2, the committee also voted to continue with its planned £200 billion (USD247.55 billion) quantitative easing program, bringing its bond-buying program to a total of £645 billion.
  • Bank of England also expects UK gross domestic product (GDP) to fall by 14% over 2020 as a whole, driven by a 25% decline in the second quarter.
  • They also predict the unemployment rate to be at 8% this year, 7% in 2021 and 4% 2022.
  • We feel that the Bank of England could be too optimistic on the illustrative scenario as workers will be worried about their jobs and companies might be risk-averse even after the pandemic.
  • Therefore, we believe that GBP/NZD could fall further as New Zealand’s economy could improve faster compared to the UK’s economy.

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Fullerton Markets Research Team

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