Bank of England's Bailey ready to use policy firepower, sees downside risks

[October 08, 2020]  By David Milliken and Huw Jones

LONDON (Reuters) - Bank of England Governor Andrew Bailey said on Thursday that risks to Britain's economy were "very much on the downside" and that the central bank was ready to use its policy firepower to limit the impact of a second wave of COVID cases.

"We must use policy actively and aggressively, and we have done that," Bailey told a European Union banking conference.

Britain's central bank cut interest rates to a record-low 0.1% at the start of the crisis and has announced 300 billion pounds of extra government bond purchases. It is also considering whether it could or should cut rates below zero.

"We are by no means out of firepower ... in terms of our policy tools, and we will use that firepower as appropriate, properly and strongly in response to second and third waves, where we think it is necessary," Bailey said.

Sterling rose to a day's high against the dollar and euro after these remarks.

Bailey had earlier told the online webinar hosted by the European Commission that British gross domestic product in the third quarter was probably 7-10% below its pre-pandemic levels, echoing comments he made two weeks ago.

While that represented a recovery from a fall of more than 20% earlier in the year, the bounce back had been very uneven as some sectors continued to face restrictions and represented a very big recession.

"There is an unprecedented level of uncertainty at the moment. And the risks, I'm afraid -- certainly as we see them -- are very much on the downside," Bailey said, citing the rise of COVID-19 cases in Britain.

Asked about the prospect of a trade deal between Britain and the European Union before a post-Brexit transition ends on Dec. 31, Bailey said it was vital that economies remained open.

"Nobody benefits from protectionism in my view," he said.

Britain's post-Brexit transition would not be easy and "would have been easier had we not have to deal with COVID", he added.

In a newspaper interview published on Thursday, he said he believed Britain and the EU should be able to reach a trade deal, and that he did not expect the new wave of coronavirus cases to be as damaging as the first.

(Reporting by David Milliken and Huw Jones; Writing by William Schomberg; Editing by Alison Williams)

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