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The BoE said on Thursday its nine monetary
policymakers voted unanimously to keep their main stimulus
programmes on hold and that the world's sixth-biggest economy
was recovering faster than it had thought as recently as last
month.
The Monetary Policy Committee said the economy was likely to
continue its recovery and be 7% below its end-2019 size in the
third quarter. In August, the BoE had said the economy would be
9% below its end-2019 level in Q3.
"The Committee will continue to monitor the situation closely
and stands ready to adjust monetary policy accordingly to meet
its remit," the BoE said. "The MPC will keep under review the
range of actions that could be taken to deliver its objective."
Britain suffered the biggest economic contraction among Group of
Seven nations between April and June, slumping by 20%, and like
other central banks around the world, it is studying how best to
use its limited room for manoeuvre.
On Wednesday, the U.S. Federal Reserve promised to keep rates
near zero percent until inflation is on track to "moderately
exceed" its 2% inflation target "for some time".
Many analysts have said they expect the British central bank to
increase the size of its bond-buying programme in November.
The BoE said on Thursday the MPC had been briefed on how its
previously announced plans to explore how a negative Bank Rate
"could be implemented effectively, should the outlook for
inflation and output warrant it at some point during this period
of low equilibrium rates."
Sterling fell sharply after the announcement, weakening by
around 0.5% on the day against the U.S. dollar <GBP=> to $1.29.
CLOUDS GATHERING
"The economic recovery has so far exceeded the Bank's earlier
projections but storm clouds are gathering with new social
restrictions in place, the furlough scheme unwinding and Brexit
rearing its head again," said Jon Hudson, UK equities investment
manager at Premier Miton.
"With inflation well below target, it's therefore unsurprising
to see the MPC hinting at further stimulus in the coming
months."
Governor Andrew Bailey and some of his colleagues have
previously said that they were still working out the pros and
cons of following the lead of other central banks, including
those of the euro zone and Japan, and taking rates negative.
The BoE said on Thursday that it would "begin structured
engagement on the operational considerations in 2020 Q4", a sign
that it would look at how to take rates below zero without
hurting banks' ability to lend and damaging the recovery.
As expected, the BoE kept its benchmark interest rate at 0.1%
and left unchanged the size of its bond-buying programme at 745
billion pounds ($966 billion).
Economists polled by Reuters had expected the BoE to hold steady
at its September policy meeting.
($1 = 0.7712 pounds)
(Writing by William Schomberg; Editing by Catherine Evans)
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