The Bank of England is likely to supplement its quantitative easing war chest next month to offer more support to an economy still struggling amid coronavirus restrictions on activity and fears of a no-deal Brexit, a Reuters poll found.
Surging coronavirus infection numbers have pushed the government to tighten curbs across swathes of the country to try to stop the spread. More areas face tougher lockdowns in coming days.
A national lockdown earlier this year that forced businesses to close and citizens to stay home meant the UK economy contracted an historic 19.8% in the second quarter.
While the Oct. 13-19 poll predicted 16.7% growth last quarter, the outlook has darkened. The economy is expected to expand 2.6% this quarter and 1.0% next – weaker than the respective 3.4% and 1.3% median forecasts given last month.
For all of 2020, the economy will contract 10.1% but expand 6.1% next year, according to the poll of 78 economists, compared with the respective -10.0% and +6.1% forecasts given last month.
“The resurgence of COVID-19 across the UK and the resulting restrictions mean the recovery is set to stall. It now looks fairly inevitable that the Monetary Policy Committee will top-up its asset purchase programme,” said James Smith at ING.
With Bank Rate already at a record low of 0.10%, and 59 of 64 economists who responded to an extra question saying the MPC would not take it below zero, the focus will be on bond buying, or quantitative easing.
Having added 300 billion pounds to the programme earlier this year, taking its total projected spend on gilts to 725 billion pounds, the median forecast in the poll was for a 100 billion pound top-up on Nov. 5.
“That would give policymakers scope to continue making purchases until early summer next year if the pace of purchases stays broadly similar,” ING’s Smith said.
Bank Rate was not expected to move until 2023 at least and only two of the 68 economists polled expected any change next month.
In the daily charts of GBP/USD, the sterling gained against the dollar early Wednesday morning in Sydney all the way through Tokyo session.
The stimulus talks of Nancy Pelosi weighed the dollar against other major currencies. The uncertainty in the dollar also increases as the U.S. Presidential Election in November comes near.
Although the sterling’s outlook may also be negative due to the resurgence of COVID-19, lockdown measures and the Brexit deadlock, the pound profited yet from the ongoing woes in the U.S. economy.
We can see that the pair is still bouncing inside the area of support and resistance. Any breakouts from these levels may not be seen any time in the week or the following months. Although, short-term traders are able to take advantage of this volatility, it is still best to proceed with pre-cautions.
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