Fundamental Comment

BOE widens stimulus with anticipation of the worst

BOE widens stimulus with anticipation of the worst

The Bank of England announced decided on Thursday to continue stimulating the economy by increasing the value of its program to asset purchases in order to meet the new challenges facing the British economy, while kept interest rates unchanged.

The BOE left interest rates steady at their lowest rates at 0.10%, in line with market expectations, with the consensus of the nine monetary policy committee members, while the bank decided to increase the asset purchase program by 150 billion pounds.

The asset purchase program rose to the level of 895 billion pounds, higher than expectations of 845 billion pounds, from 745 billion pounds.

The BOE stated that the measures it took would give it the ability to continue buying bonds until the end of 2021, in order to face the repercussions of the second wave of the Corona pandemic that has already begun in Britain, in addition to supporting the economy for its expected recovery over the next year.

The BOE has lowered expectations for the British economy, as it is now expected that the economy will return to its size before the Corona pandemic in the first quarter of 2022, after its previous expectations that the economy would return to pre-pandemic levels by the end of 2021.

The bank expected that the British economy would contract by 2% during the fourth quarter of this year with Britain entering a new state of closure to record a double recession during this year, which may push it to record a contraction during the whole of 2020 by 11%.

The economy will grow 7.25% during the year 2021, less than the previous expectations of 9%, while inflation expectations for two years have stabilized at 2%, which is the target of the bank, the BOE forecast. 

Economic outlook remains unusually uncertain, as it depends on the development of the pandemic and measures taken to protect public health, as well as the nature of and transition to new trade arrangements between the European Union and the United Kingdom.

The pound sterling rose against the dollar during Thursday’s trading after the decision of the BOE, and recorded the highest level at 1.3050 after it opened trading today at the level of 1.2978.

This recovery in the royal currency levels comes after the decline of the US dollar for a fourth consecutive session, in light of the increasing tensions after the US presidential election results approached the victory of Democratic candidate Joe Biden. 


Share Article