Monex: BoE meeting will not bring about negative interest rates

Monex: BoE meeting will not bring about negative interest rates

1 februari 2021

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This is a commentary by Ima Sammani en Simon Harvey, FX Market Analysts at Monex Europe, on next Thursday's Bank of England meeting.

"We don’t see the Bank of England committing to or embarking on negative interest rates as early as Thursday’s meeting, nor do we expect changes to the QE, but Term Funding Scheme conditions for SMEs (TFSME) are set to be loosened."
   
Since the December 17th meeting, the Bank of England (BoE) has witnessed the implementation of a free trade agreement between the EU and UK, positive developments in the form of vaccine distribution, and the imposition of new national lockdown measures across the UK. Considering an FTA with the EU already underscored the BoE’s forecasts back in November, developments since the December meeting have posed downside risks in the short-run. This begs the question of what further easing measures the Bank is going to roll out in response to the prolonged national lockdown measures that are in place across the UK. This is especially the case considering the BoE has responded to the realisation of downside risks by loosening policy in its last two meetings. In November, the implementation of a one-month national lockdown resulted in the BoE expanding its QE programme for the third time since the pandemic, by £150bn. While in December, tighter tiered measures in the run-up to Christmas saw the Bank of England extend its Term Funding Scheme for SMEs (TFSME) from the end of April to the end of October.
   
Given the additional downside risks to the economic outlook since December’s meeting, we believe the BoE will further expand the parameters of its TFSME programme at February’s meeting, while giving markets insight into the viability of negative rates within the UK financial system. However, considering the current economic outlook and the Bank’s previous assessment that negative rates are most effective during cyclical upswings, we don’t foresee the Monetary Policy Committee (MPC) implementing or even signalling negative rates in the near-term at Thursday’s meeting – this is outlined in our latest GBP outlook. We also don’t expect the MPC to adapt its QE programme as over £100bn still remains within the current confines.

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