The pound stabilizes position versus the US dollar in European trading session (7 / May) after the release of the policy announcement of the British central bank (BoE). The pound is also relatively ahead of the Japanese Yen and the Euro.
In the announcement, the bank conveyed the decision to keep interest rates steady at the level of 0.1 percent and the quantitative easing package worth GBP200 billion. In today's policy meeting, two people expect monetary easing to be added as much as GBP100 Billion.
However, the majority of members of the monetary policy board (MPC) chose not to change interest rates or quantitative easing. "Although we expect the BoE to announce more asset purchases in the next few months, today is still too early.
Because most of the stimulus announced by the BoE is still in process, the BoE can wait, especially because key risks are still under control," said Kallum Pickering, an economist at Berenberg Bank. In the same announcement, the UK central bank delivered estimates "a sharp fall in UK GDP in the first half of 2020 and a drastic increase in unemployment outside workers who are now fired".
The BoE believes the fall in GDP is only temporary and that economic activity will rise quickly as soon as the rules of social restrictions are relaxed by the government, but it still provides an important warning.
Pound Sterling Movement in European Trade
"Due to the continued assumption of prudence among households and companies, the economy needs some time to get back on track. CPI inflation is expected to fall further below the 2 percent target during the second half of the year, largely reflecting weak demand, "said the central bank.
In line with the anticipated risk, the BoE emphasized that it is always ready to go further and launch additional monetary easing if needed. But in his speech, BoE Governor Andrew Bailey said he would review the UK government's plan to normalize post-lockdown economic activity first before deciding on quantitative easing.
Pound Sterling moved almost flat verus Greenback in the range of 1.2440 in European trading session (5 / May) after the release of the Purchasing Managers' Index (PMI) report. The data suggests that UK economic growth will experience a quarterly contraction of at least 7 percent as a result of the lockdown that took place since last month.
IHS Markit reported the PMI score for the service sector fell from 34.5 to 13.4 in the April survey results. This figure is better than the initial estimate pegged at 12.3, but it is the lowest record since data recording began in 1996.
Poor PMI Data Released
PMI data for the manufacturing sector released last week shows an equally bad situation. As a result, the Composite PMI score collapsed from 36.0 to 13.8. Service and manufacturing data do not yet include retailers who have been forced to close stores since March 23 in the context of a national lockdown.
"The April survey results are consistent with (a situation in which) the economy has fallen at a quarterly pace of around 7 percent, but we expect the actual decline in GDP to be even greater," said Tim Moore, an economist at IHS Markit.
The Services PMI report also showed a slight increase in business expectations from 47.9 to 53.2. This indicates that companies expect to be able to resume normal operations in the summer. However, the British government has yet to announce when they will start loosening lockdown.Recently, PM Boris Johnson only discussed the possibility of students returning to school as of 1 June.
Market participants will continue to monitor government announcements regarding this issue to gauge how much the economy will contract in the future. The announcement of the policy of the British central bank (BoE) on Thursday will also attract the attention of many parties.
