BoE delivers substantial easing, more in November - Danske

According to analysts from Danske Bank, a technical recession will hit the UK and the Bank of England (BoE) will ease monetary policy further in November.

Key Quotes:

“As expected the Bank of England (BoE) delivered a substantial easing package today, including a 25bp Bank Rate cut to 0.25%, GBP70bn QE (GBP60bn government bond and GBP10bn corporate bond purchases) and a new Term Funding Scheme (TFS).”

“BoE maintained a very dovish stance indicating a further rate cut later this year to the effective lower bound at above but close to zero. BoE also stressed that it can do more QE (both gilts and corporate bonds) if needed.”

“By easing BoE confirmed that it puts more weight on growth and unemployment relative to inflation, which was also the case after the financial crisis when BoE held monetary policy accommodative despite inflation being significantly above the 2% target.”

“We forecast a technical recession in the UK with negative GDP growth in Q3 and Q4 16 and hence we expect BoE to ease further in November, when the next ‘Super Thursday’ takes place (we do not expect BoE to take any actions at the next meeting in September). We expect BoE to cut the Bank Rate by 15bp to 0.10% and to increase both APF and CBPS at the November meeting.”