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Sterling gets slight boost from Bank of England bounceback scenario

Written by Business World, on 7th May 2020. Posted in EU

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The pound rose against the dollar and euro in early London trading on Thursday after the Bank of England held rates steady and announced no further stimulus, as expected, and suggested Britain's economy could bounce back by 15% in 2021.

The Bank of England said it was ready to take fresh action to counter the coronavirus hammering which could cause the country's biggest economic slump in over 300 years in 2020.

In what it called an illustrative scenario, the BoE saw Britain's economy plunge 14% in 2020 followed by a 15% bounceback in 2021.

The pound was at a low-point before the announcement, having reached a 12-day low versus the dollar on Wednesday, and rose on the news.

"The bank is anticipating quite a substantial jump in GDP for next year," said Jane Foley, senior FX strategist at Rabobank.

"That is quite encouraging. The bank's forecast for GDP this year at 14% down is lower than some of the numbers that we saw even from the Office of Budget Responsibility. That 14%, yes that's a horrific number, but perhaps not as bad as some of the numbers that have been out in the market in the last six weeks or so," she said.

The pound rose to as much as $1.2418 and was last at $1.2363, up 0.2% on the day, although still down 0.9% on the week so far. Against the euro, the pound strengthened to as much as 87.10 pence per euro after the announcement and was last up around 0.3% on the day.

The bank's Monetary Policy Committee kept the Bank Rate at its all-time low of 0.1% and left its target for bond-buying, most of it British government debt, at 645 billion pounds ($797 billion).

However, two of the nine policymakers - Michael Saunders and Jonathan Haskel - voted for 100 billion pounds' worth of more bond-buying firepower.

Further bond-buying is expected in the coming months, and a suggestion that the bank's 200 billion of asset purchases announced in March could run out by the end of July may also have played a part in lifting the pound, Rabobank's Foley said, as it underpinned the expectation that further stimulus will be announced.

"The market is quite aware that they will be running up to that limit probably by the time they meet next time and that means that an extension of quantitative easing is likely," Foley said.

The contents of a news briefing with BoE governor Andrew Bailey will be made public at 0900 GMT.

"The move in GBP this morning hardly looks like the start of a more sustained recovery, as uncertainty around the slow re-opening of the UK economy persist," wrote ING analysts in a note to clients. (Reuters)

Source: www.businessworld.ie

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