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BoE extends asset purchase program by further GDP 100 billion
The Bank of England’s Monetary Policy Committee agreed to extend its asset purchase program by a further GBP 100 billion, beyond the GBP 200 billion of purchases sanctioned back in March. The outcome was not unexpected given that the prospect of such an outturn had been well flagged by last month’s meeting minutes and recent communication from various MPC speeches/webinars, and was well reflected in market expectations. However, there were two aspects of today’s announcement that were slightly unexpected and pointed to the Committee being less downbeat about the near-term prospects for the U.K. economy than they were last month.
The decision to extend asset purchases was not unanimous. The BoE’s Chief Economist, Andy Haldane, voted against announcing an immediate rise, noting a preference to maintain the status quo. Partly, this view stems from the probability that the near-term fall in U.K. GDP throughout the second quarter proves less severe than the BoE envisaged back in May.
Secondly, while the rest of Committee underpinned the GBP 100 billion of asset purchases, it also expressed a desire for these to be conducted at a much slower rate than the pace at which the GBP 200 billion sanctioned back in March were done. Markedly, this suggested that the rate of weekly asset purchases would decelerate from ~GBP 14 billion /week to ~GBP 4 billion.
“The increase means that the Bank of England will continue to ease policy through the second half of the year, meaning that all aspects of the institution’s stimulus response – delivered in reaction to the Covid-19 pandemic – remain active. Beyond asset purchases, however, no further changes to the monetary policy stance were announced – an outcome that was also in line with our and market expectations. Notably, Bank Rate was kept at 0.10%, despite continued speculation over a potential negative Bank Rate”, said Lloyds Bank in a research report.