The GBPEUR exchange soared above the 1.1400 level on Thursday after the latest Bank of England rate announcement saw rates on hold, with no new stimulus. The bank also predicted a bounce in the economy as the vaccine program gathers pace.
The GBP to EUR is trading at 1.1435 on Friday and the pair should now target the 1.1500 level as predicted this week.
BoE sees Q1 slump followed by a recovery
The Bank of England held interest rates at record lows of 0.1% at their latest policy meeting. The bank also held off on providing any further stimulus measures. Both of these moves were expected by analysts but traders have focused on the bank’s statement.
The BoE is expecting a sharp rebound in the UK economy this year as the government’s vaccination schedule continues. The country has already vaccinated 10 million residents and is ahead of other developed nations on this front. Economists at the central bank predict a drop of 4.2% in first quarter GDP, before a swift recovery in the second quarter. The analysts also predicted that growth could return to pre-virus levels by March 2022.
On negative rates, the BoE said they wanted lenders to prepare for such a scenario by July, in the even ot a further downturn. The bank’s governor said in a statement:
“The monetary policy committee’s central forecast assumes that Covid-related restrictions and people’s health concerns weigh on activity in the near term, but that the vaccination programme leads to those easing, such that gross domestic product is projected to recover strongly from the second quarter of 2021, towards pre-Covid levels.”
Negative interest rates could be deployed in developd nations as governments grapple with huge debt loads. Sub-zero rates would lower borrowing costs for households and enterprise, but savers would be punished further. One of the reasons for the stock market rally is the lack of return in bonds, which forces pensions to chase yield performance in riskier arenas. This brings its own set of risks and the central banks are careful in their language and actions to protect stocks.
UK bringing mandatory quarantine for travellers
The UK government will require travellers to from certain countries to quarantine for 10 days at government-approved accommodation.
Matt Hancock has asked Australia and New Zealand for advice on the policy, which critics in the opposition party say is “too little, too late”. The UK allowed 50,000 visitors a day to fly in at the onset of the pandemic as Australasian countries locked their borders. This has resulted in the UK being worse off as Australia continues to see virus-free days.
Prime Minister Boris Johnson is seeing March 8th as the earliest opportunity to emerge from the third lockdown. Schools are set to re-open and he has said that a plan will be published around the 22nd of February.
