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Pound Rises After BoE Raises Forecasts

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The Bank of England said Thursday that the UK economy is on track for a stronger economic recovery than previously expected, boosted by a relatively fast Covid-19 vaccination campaign.

In February, the central bank predicted that the world’s fifth largest economy will grow 5% this year after contracting 10% in 2020 – the worst in more than three centuries.

The economic downturn in the UK last year was more severe than most other European countries, in part due to slower steps to implement strict quarantine measures to contain the spread of the coronavirus.

The Bank of England raised its 2021 growth forecast to 7.25%, slightly above analysts’ expectations.

A more favorable economic outlook is emerging as the country is gradually emerging from isolation and more people are receiving Covid-19 vaccines.

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The latest government data showed that more than 50.6 million Covid shots have been made in the UK so far, with nearly 35 million first doses and 15.8 million second doses administered.

The Bank of England’s Monetary Policy Committee on Thursday unanimously voted to keep interest rates at their previous record low of 0.1%. The Bank of England predicts an interest rate hike by the second quarter of 2023.

The Bank of England said Thursday it would slow the pace of bond purchases as it sharply raised its forecast for UK economic growth this year following the coronavirus downturn.

The Bank of England kept its bond buying program at £ 895 billion ($ 1.24 trillion), as economists surveyed by Reuters had expected, but said it would slow bond purchases to £ 3.4 billion a week between May and August. up from the current rate of 4.4 billion pounds per week.

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Ahead of the announcement of the decision, Deutsche Bank analysts said they expected it to be a “very serious question” about whether the bank decided to pull the trigger to slow down its asset purchases.

Sanjay Raja, senior economist for the UK at Deutsche Bank, said in a policy note that the decision on the cut is likely to be made at the June meeting of the Central Bank, adding that it “fits well” with the lifting of social restrictions on June 21.

Investors were optimistic about the improved economic outlook for the UK. The UK’s FTSE 100 rose 1.8% in the previous session, posting its best daily performance since mid-February. The stock index last traded about 0.1% higher on Thursday.

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Sterling rallied against the dollar, trading at $ 1.3928 after the release of the report, while the euro rose 0.1% against the pound to hit 86.44 pence.

Fabrice Montagne, chief economist for the UK at Barclays, told CNBC in Street Signs Europe on Thursday that the Bank of England was “already one of the most optimistic” central banks even before it boosted its economic outlook.

The Bank of England’s February forecast was at the upper end of the agreed range, Montagne said, and an increase in its outlook now “risks sounding overly hawkish and possibly demanding a (rate) hike as soon as possible.”

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