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BoE Preview: Could rates go negative?

Ben Weiss, Wednesday, 17 June 2020

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Another important Bank of England (BoE) Monetary Policy Committee (MPC) meeting is upon us as the central bank makes another crucial decision on the country’s monetary policy. With protests continuing over the weekend, the dreaded second wave of the coronavirus could become a reality. Brexit is also coming back into the fray, so the BoE’s decision is going to carry even more weight than usual. Here’s exactly when the MPC meeting is, what is expected to happen and what markets might be moving as a result.

When is the BoE’s MPC meeting?

The BoE’s MPC met this week, but their decision on monetary policy will be announced to the public at 12:00 (midday) on Thursday 18 June. The minutes from the meeting will also be released at the same time, giving investors a chance to dissect the thought processes behind the decision and try to infer future sentiment of the MPC members.

What is the BoE expected to do?

Rumors of negative rates have fluttered around the markets of late. With a Governor of the BoE who is open to negative rates and not afraid to upset the applecart, these rumours are more substantial than most, but we can’t see interest rates fall below the current 0.1% just yet. Given the weak economy at present, a rise in rates is also off the table, so it seems highly likely they won’t change at all.

That leaves quantitative easing (QE) as the next most impactful solution to try to bolster the economy. Two of the nine members of the committee previously voted for an increase in the asset purchase programme to the tune of £100 billion. It seems unlikely this time, that option will be the minority and an increase in QE is firmly on the card. However, it’s the £100-billion figure that could be the one to provide the mystery and dictate how markets will react. Should the MPC decide to ramp it up by exactly £100 billion, will the markets have already priced this in? Perhaps, but if the amount comes in more or less than £100 billion, that’s when the volatility could hit. 

March was the most recent time the QE scheme was added to, with an extra £200 billion at the time taking the total amount to £645 billion. Speculation over the amount of the latest figure (assuming QE is indeed ramped up) varies between £80-150 billion.

What markets will be affected?

The pound is the main market that will be influenced by the decision. Should the QE programme be intensified, it should push the pound higher. With talk of negative rates also mulling around, it’s worth mentioning that if we do see this unprecedented action, the pound will likely struggle significantly.

With shops reopening this week, the decision also ties in nicely with the ‘retail resumption.’ As a result, UK stocks might be more susceptible to the announcement than normal, so the FTSE is worth monitoring as well.

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