Bank Of England Cuts Outlook Despite Vaccines Rollout

In this file photo taken on June 17, 2020 mounted police officers patrol outside the Royal Exchange and the Bank of England in London on June 17, 2020. Tolga Akmen / AFP

 

The Bank of England left interest rates and stimulus unchanged Thursday, but cut its 2021 growth forecast owing to the deadly coronavirus crisis — despite a global vaccine rollout.

BoE policymakers voted to keep borrowing costs at a record-low 0.1 percent, after their first monetary policy meeting since Britain’s divorce from the European Union at the start of January.

The bank also cut its 2021 gross domestic product growth forecast to 5.0 percent from 7.25 percent, while hinting at the possibility of implementing negative interest rates later this year.

“Covid-19 vaccination programmes are under way in a number of countries, including the United Kingdom, which has improved the economic outlook,” the BoE said.

READ ALSO: Outbreak Of UK COVID-19 Variant Detected In Italian Town

“Nevertheless, recent UK and global activity has been affected by an increase in Covid cases, including from newly identified strains of the virus, and the associated reimposition of restrictions.”

Much of the UK re-entered lockdown in early January to curb variant strains that are deemed more transmissible, with restrictions similar to initial Covid curbs imposed in the second quarter of 2020.

However, more than 10 million people in the UK have now received a first dose of a Covid-19 vaccine.

The BoE meanwhile noted Thursday that Britain and the European Union reached a trade agreement that has applied since January 1, averting a chaotic no-deal Brexit.

And it signalled that Britain would likely avoid a double-dip recession with marginal growth expected in the final three months of last year.

– Negative rates eyed –

The BoE also declared Thursday that it was “appropriate” to start preparations for the potential introduction of negative interest rates in six months’ time.

A negative interest rate would likely see retail banks further cutting their own borrowing costs, which would be unwelcome news for savers but a boost for borrowers.

The radical policy — which has already been employed by the Bank of Japan and the European Central Bank — has been under consideration for some time in Britain.

“Commercial banks need at least six months to prepare for negative rates and the central bank has now put them on notice, potentially paving the way for negative interest rates from August,” noted AJ Bell analyst Laith Khalaf.

“It’s likely markets will take this as a negative sign for longer term UK interest rate policy, even if it is designed simply to cover all bases as the pandemic continues to elevate economic uncertainty.”

The BoE said that the economy was about eight percent smaller in the fourth quarter than before the pandemic began in early 2020.

It expects gross domestic product to shrink by about four percent in the first quarter of this year, reversing a forecast for growth.

In response to the pandemic, the BoE and UK government have pumped billions of pounds into the British economy to stimulate growth and protect jobs.

The central bank added Thursday that it had maintained its quantitative easing stimulus programme at £895 billion ($1.2 trillion, 1.0 trillion euros).

The government has so far spent about £300 billion in emergency measures to combat economic fallout, including a costly subsidy for private sector wages.

COVID-19: Bank Of England Announces £150bn Extra Cash Stimulus

In this file photo taken on June 17, 2020, mounted police officers patrol outside the Royal Exchange and the Bank of England in London June 17, 2020. PHOTO: Tolga Akmen / AFP

 

The Bank of England on Thursday unveiled an extra £150 billion in cash stimulus as it forecast a deeper coronavirus-induced recession for the UK and  England began a second lockdown.

The BoE, which held its benchmark interest rate at a record-low 0.1 percent, lifted its quantitative easing (QE) stimulus by the equivalent of $195 billion as it seeks to boost lending by retail banks and consequently economic growth.

The bank’s monetary policy committee voted “for the Bank of England to increase the target stock of purchased UK government bonds by an additional £150 billion, financed by the issuance of central bank reserves”, it said in a statement.

The statement made no reference to the possibility of negative interest rates, as some had speculated could be used as an additional stimulus tool.

The news came ahead of a statement from British finance minister Rishi Sunak who is reportedly set to announce another multi-billion-pound coronavirus support package, including another extension of his government’s furlough jobs scheme.

Thursday’s BoE announcement meanwhile took the central bank’s total QE stimulus amount to £895 billion.

The bank has now pumped out £450 billion under its QE programme since March when Covid-19 prompted Britain’s first coronavirus lockdown.

Prior to this, it had pumped hundreds of billions of pounds into the UK economy over the past decade in the wake of the global financial crisis and Brexit.

– ‘New lockdown’ –

England began Thursday a minimum of four weeks of stay-at-home restrictions, as the government seeks to stem a second wave of Covid-19 after similar action elsewhere in Europe.

The initial lockdown that lasted around three months until mid-June sparked Britain’s deepest recession on record.

“Since the committee’s previous meeting (in September), there has been a rapid rise in rates of Covid infection,” the BoE said in a statement announcing the outcome of Wednesday’s regular policy meeting.

“The outlook for the economy remains unusually uncertain,” it said.

“It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom” post Brexit.

“It also depends on the responses of households, businesses and financial markets to these developments,” the BoE added.

It forecast the economy would shrink by 11 percent this year, worse than prior guidance of a 9.5-percent contraction.

GDP was then set to rebound by 7.25 percent next year — but this was also down from the 9.0 percent increase given previously.

– ‘Extraordinary situation’ –

Under QE, the BoE purchases assets such as government and corporate bonds, with the aim of boosting investment and lending to stimulate economic activity.

BoE governor Andrew Bailey, speaking to reporters on a conference call, described Thursday’s action as a response to an “extraordinary” global health emergency.

“We’re not experts on what the measures should be on health, on national lockdown. We talk to experts,” Bailey said.

“What I would say, and I look at it from the point of view of economic policy, I think it’s very important that we take prompt, strong action.

“We are all aware that this is an extraordinary situation, I think it is therefore appropriate that we take this action,” he added.

AFP

UK Economy 7-10% Below Pre-COVID Levels- Bank Of England Chief

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Bank of England governor Andrew Bailey on Thursday said UK economic output in the third quarter was between seven and ten percent below pre-pandemic levels.

While this was far better than at the start of the pandemic, Bailey warned there was still an unprecedented level of uncertainty and that the risks to the economy are still to the downside.

“We think, in the third quarter, on average, activity in the economy will probably (have been) somewhere between seven and ten percent below pre-Covid levels,” he said in an online conference.

“And while that number was obviously much better than we had in the spring, it’s still… produced a very big recession.”

Recent official data have shown that the UK economy shrank by a fifth in the second quarter which coincided with Britain being in lockdown.

Bailey added that the economy faced the prospect of an “uneven” recovery as the British government battles a second wave of rising infections with tighter restrictions, particularly on the hospitality sector.

“When you look at areas of activity in the economy that require more close social interaction, it’s no surprise that they have been the weakest to recover,” he said.

“Other areas of the economy have actually recovered very strongly — and a few areas of the UK are ahead of where they were pre-COVID.”

AFP

Andrew Bailey Named As Bank Of England Governor

Chief Executive Officer of the Financial Conduct Authority Andrew Bailey leaves 10 Downing Street in central London.  Oli SCARFF / AFP

 

Britain on Friday named Andrew Bailey, head of the Financial Conduct Authority regulator, as governor of the Bank of England to help guide the economy through any Brexit fallout.

“I am delighted to announce that the next governor of the Bank of England will be Andrew Bailey,” said finance minister Sajid Javid, adding that the former BoE deputy will succeed Mark Carney on March 16.

“Without question, he is the right person to lead the bank as we forge a new future outside the EU.”

The 60-year-old Briton, who has spent most of his career at the BoE, will have the heavy task of conducting the country’s monetary policy at the time of its exit from the European Union — promised by new Prime Minister Boris Johnson by January 31.

Canada-born Carney — who steps down after six years in the job — has meanwhile agreed to extend the end of his tenure from January 31 to March 15 to oversee an orderly transition.

‘Clear front-runner’ 

Chancellor of the Exchequer Javid added that Bailey was the “clear front runner” in the contest to succeed Carney, describing him as the “standout candidate in a competitive field” and a “leader of international standing”.

Cambridge-educated Bailey worked at the Bank of England in various posts between 1985 and 2016.

He played a key role during the global financial crisis and subsequent vicious recession, overseeing the BoE’s special operations to help troubled banks.

Bailey was also a deputy governor for prudential regulation between 2013 and 2016 when he was appointed as head of the FCA finance sector watchdog.

Javid continued: “What matters is that we appoint someone who can make the right decisions.

“Andrew Bailey has the experience, the record and the character to do just that. He is, without doubt, the best candidate for the job.”

Bailey had been one of the favourites to take over, but there had also been speculation that institution could see its first female chief.

Carney, 54, who became a British national during his time in London, had already extended his tenure twice due to Brexit uncertainty.

The Financial Times, citing sources close to Javid, reported on Friday that all candidates had been “vetted” on “whether their views were compatible with the direction” of Johnson’s pro-Brexit administration.

The BoE under Carney had repeatedly warned over the impact of Britain’s departure from the European Union, arguing it could push the economy into recession.

Friday’s news comes one day after the BoE froze interest rates at 0.75 per cent but left the door open to a reduction in the event of fresh turmoil, in the first decision since Johnson’s election triumph last week.

The new BoE boss may need to consider raising interest rates “back to more normal levels or fight the next downturn with not much ammunition” and defend the bank from “the growing risk of political interference”, noted Ruth Gregory, an economist at Capital Economics.

 Economy strengthens –

However, bright official data showed Friday that the British economy strengthened by more than expected in the third quarter of 2019 — despite looming Brexit.

Gross domestic product rebounded by 0.4 per cent in the July-September period, the Office for National Statistics (ONS) said in a second estimate.

That was stronger than the previous estimate of 0.3-per cent expansion and followed a 0.2-per cent contraction in the second quarter — meaning that the economy avoided a technical recession

The BoE had cautioned Thursday that it might need to alter its monetary policy “if global growth fails to stabilise or if Brexit uncertainties remained entrenched”.

AFP

British Government Launches Search For New Bank Of England Boss

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The British government on Wednesday launched its search for the next governor of the Bank of England, with Mark Carney due to step down early next year.

Finance minister Philip Hammond praised Carney as a “steady hand” who steered the economy through “a challenging period” following Britain’s 2016 Brexit vote.

Canadian national Carney, 54, took up the post on July 1, 2013, and will leave on January 31 next year, having extended his tenure twice due to Brexit uncertainty.

“In today’s rapidly evolving economy the role of governor is more important than ever,” said Hammond, whose official title is chancellor of the exchequer.

“Finding a candidate with the right skills and experience to lead the Bank of England is vital for ensuring the continuing strength of our economy and for maintaining the UK’s position as a leading global financial centre.”

The Treasury said it will employ a specialist head hunter to find Carney’s successor, with interviews expected over the summer ahead of an autumn appointment.

The annual salary for the position stands at £480,000 ($622,400, 554,000 euros).

Bank Of England Prepares Cash Access Boost Before Brexit

The Governor of the Bank of England, Mark Carney attends a press conference at the Bank of England in London on February 25, 2019.  Kirsty O’Connor / POOL / AFP

 

The Bank of England on Tuesday said it was preparing to give lenders greater access to cash borrowing in its latest move to help bring financial stability ahead of Brexit.

“The Bank will increase the frequency of existing market-wide sterling (cash loans)… from monthly to weekly over the weeks surrounding the planned EU withdrawal date,” the BoE said in a statement.

“This change will apply from March and will run until end April.”

The BoE added: “This is a prudent and precautionary step, consistent with the Bank’s financial stability objective, to provide additional flexibility in the Bank’s provision of liquidity insurance in the coming months.”

Updating a panel of cross-party British MPs Tuesday on Bank of England forecasts and policy, Bank of England governor Mark Carney insisted that the liquidity announcement was “part of normal contingency planning” and that commercial banks were functioning well.

“We are not seeing any liquidity stresses in the market,” Carney said.

READ ALSO: Theresa May To Seek MPs’ Approval For New Brexit Strategy

The central bank carried out the same measure ahead of and following Britain’s referendum on leaving the EU in June 2016.

Britain is on course to leave the European Union on March 29, although there has been increasing talk of a possible delay.

“The Bank of England is today announcing a temporary amendment to its liquidity insurance facilities,” the BoE said Tuesday.

“The Bank will increase the frequency of existing market-wide sterling operations, Indexed Long-Term Repos (ILTRs).”

In ILTR operations, financial institutions can offer assets to the Bank of England in return for six-month cash loans.

This helps banks and the wider financial industry keep ticking over during periods of market turbulence.

Similar lending was also carried out in 2008 during the global financial crisis.

Tuesday’s announcement comes a day after the Bank of England said that authorities in Britain and the United States had agreed to maintain how multi-trillion-dollar financial transactions are carried out between the two countries after Brexit.

The agreement concerns trades of derivatives — securities whose value is based on an asset such as currencies, stocks and commodities.

Meanwhile, also on Tuesday, Britain’s Prime Minister Theresa May faced mounting pressure from her own government to delay Brexit after the main opposition Labour Party raised the prospect of a second referendum.

May has steadfastly argued that she must keep the prospect of Britain crashing out the bloc without an agreement on March 29 on the table in order to wrest essential concessions from Brussels.

But her talks with European leaders on Sunday and Monday in Egypt achieved no breakthrough and the 46-year relationship is approaching a messy breakup that could wreak havoc on global markets and create border chaos.

AFP

Bank Of England Hikes Interest Rate For First Time In Decade

Bank Of England Hikes Interest Rate For First Time In Decade
Governor of the Bank of England Mark Carney (C) arrives for the announcement of the Bank of England quarterly Inflation Report and interest rate decision at the Bank of England in London on November 2, 2017. Stefan Rousseau / POOL / AFP

 

The Bank of England on Thursday raised its main interest rate for the first time since 2007, or before the global financial crisis, as it tackles Brexit-fuelled inflation.

Policymakers voted 7-2 to tighten borrowing costs to 0.50 percent from a record low of 0.25 percent, as a weak pound caused by Brexit uncertainty has hiked the cost of imports into Britain and in turn sent the country’s inflation rising far above the BoE’s target.

The hotly-anticipated move mirrors policy tightening seen in the United States and the eurozone as the global economy strengthens overall.

“The time has come to ease our foot off a little from the accelerator,” BoE Governor Mark Carney told a press conference following the decision. The minutes of the meeting showed that Carney himself voted for the rate hike.

“While the sheer novelty of the first increase in bank rates in a decade creates some uncertainty around its impact, there are reasons to expect it to be no larger than usual,” Carney said.

The BoE signalled that more rate hikes could be on the way, saying it stood “ready to respond” should the economy require it.

“There remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal,” according to the minutes of a regular policy meeting that ended Wednesday.

– Pound falls, stock market up –

The pound, which has recently risen on expectations of a hike, tumbled in an immediate reaction, while the London stock market extended earlier gains as a weaker sterling helped the earnings prospects of exporters.

The BoE “will monitor closely… the impact of today’s increase in the bank rate, and stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the two-percent target”, the minutes added.

It is the first BoE hike since before the financial crisis, when the rate were ratcheted up to 5.75 percent in July 2007.

The bank subsequently cut borrowing costs to ultra-low levels following the 2008 crisis.

The quarter-point increase reverses an emergency rate cut implemented in August 2016 on fears over the economic impact of the shock Brexit referendum that has not materialised.

Britain’s 12-month inflation rate accelerated in September to 3.0 percent — the highest level for more than five years, recent official data showed.

Around eight million Britons have never seen an interest rates rise in their adult lives, experts say, with rates languishing at rock-bottom lows after the country fell into a deep recession.

– Burden on households –

Retail banks tend to pass on any change in the BoE rate to its customers. The increase to 0.50 percent is now set to raise repayments for borrowers and therefore stretch household budgets already under pressure from weak wage growth amid low unemployment in Britain.

However, it should boost savers via higher rates of return.

Britain is on course to depart from the European Union in March 2019 — but London remains locked in tough exit negotiations with Brussels.

The BoE meanwhile refrained Thursday from altering its quantitative easing (QE) or cash stimulus policy, which it launched to encourage commercial lending and bolster growth after the financial crisis.

That was in contrast to the European Central Bank, which last week began weaning the eurozone economy off the high doses of support it had prescribed in recent years.

From January, the Frankfurt institution will reduce its purchases of government and corporate bonds to 30 billion euros ($35 billion) a month, from 60 billion euros at present.

In the US meanwhile, the Federal Reserve kept its benchmark interest rates unchanged Wednesday, but analysts expect it to rise again in December. It has already lifted borrowing costs twice in 2017.

AFP

Twitter Faces Calls In Britain To Get Tough On Online Abuse

Twitter, the social media site, is under pressure in Britain to make it easier for Internet users to report abuse after more than 30,000 people petitioned it over the case of a feminist campaigner who says she was repeatedly threatened with rape.

Caroline Criado-Perez helped lobby the Bank of England to make a woman, 19th century novelist Jane Austen, the new face on the country’s 10 pound note, to defuse criticism that women were under-represented on the currency.

She was then “targeted repeatedly with rape threats” by ill-wishers objecting to her activity, according to an online petition, which called on Twitter to urgently add a ‘report abuse’ button to its service.

Some users proposed a one-day boycott of Twitter to protest against what they said was its failure to address the issue.

Twitter’s General Manager for the UK Tony Wang promised to suspend all accounts found to be in breach of its rules.

“We take online abuse seriously,” he wrote, saying the company was testing ways to simplify reporting of abuse.

Mark Carney appointed as the new Bank of England governor

UK Chancellor, George Osborne has appointed Mark Carney as the new governor of the Bank of England ,while Sir Mervyn king who is the current governor of the bank will be stepping down by June 2013.

Carney who is the governor of the Canadian Central Bank will serve as governor of BoE for five years where he will hold new regulatory powers over banks.

He was a surprise choice for the head of the UK Central Bank and had previously ruled himself out for the post seen as one of the most important positions in the stewardship of the UK economy.

Osborne also announced the re-appointment of Charlie Bean as Bank of England deputy governor for monetary stability ,a position he will be holding until the end of June 2014.

Career

Carney will be the first non-British governor in the Bank’s 318-year history and will fill the most powerful non-elected position in the country.

Carney spent thirteen years with Goldman Sachs in its London, Tokyo, New York and Toronto offices. His progressively more senior positions included co-head of sovereign risk; executive director, emerging debt capital markets; and managing director, investment banking. He worked on South Africa’s post-apartheid venture into international bond markets, and was involved in Goldman’s work with the 1998 Russian financial crisis.

Goldman’s role in the Russian crisis was criticized at the time because while the company was advising Russia it was simultaneously betting against the country’s ability to repay its debt.

Between November 2004 and October 2007 Carney was senior associate deputy minister, and G7 deputy, at the Canadian Department of Finance. He served under Liberal finance minister Ralph Goodale and Conservative finance minister Jim Flaherty. During that time Carney oversaw the government’s controversial plan to tax income trusts at source.

Carney was also the “point man” in the government’s profitable sale of its 19 percent stake in Petro-Canada.

Carney first joined the Bank of Canada as a deputy governor on August 5, 2003.[11] About a year later he was seconded to the federal Department of Finance as senior associate deputy minister of finance, effective November 15, 2004.

Carney returned to the Bank in November 2007 after his appointment as Governor, and served as advisor to retiring Governor David Dodge before formally assuming Dodge’s job on February 1, 2008.[3] Carney was selected over Paul Jenkins, the Senior Deputy Governor, who had been considered the front-runner to succeed Dodge.[13] Carney took on this role during the depths of the recent global financial crisis. At the time of his appointment, Carney was the youngest central bank governor among the G8 and G20 groups of nations.

The Chancellor announced that Mr Carney, who spent more than a decade working for the US investment bank Goldman Sachs, will serve a fixed five-year term, rather than the eight years that had been expected.

“Mark Carney is the outstanding central banker of his generation” the Chancellor told the House of Commons said in a statement, adding that Mr Carney would bring the “strong leadership and external experience the Bank needs”.