In a statement Thursday, the Bank of England said: “While consumer spending has been softened across a variety of high-frequency indicators, there are indications that the investment intention remains weak.” This, along with the need to help the government introduce new financial aid during lockdown, has announced an additional £150 billion in QE.
Meanwhile, banks have downgraded their 2020 GDP forecast from a 9% drop to an 11% drop. He also downgraded its new year’s growth forecast from a positive 9.5% to a positive 7.5%, adding that it expects unemployment to peak at 7.5% to 8% in the second quarter of 2021.
With these considerations in mind, investors and researchers focused on the latest round of Bank of England QE, providing contrasting answers to that question. Was that enough?
On a positive note, financiers heading into the housing market were optimistic about the latest batch of support. Speaking about the bank’s announcement, Simon Gammon, managing partner at Knight Frank Finance, commented.
“The Bank of England wants to keep borrowing costs down longer to drive economic growth, but mortgage costs can continue to rise while lenders are overwhelmed by new applications.”
“Last month, there were more mortgages approved than ever since October 2007, and the surge in activity in the real estate market shows little signs of slowing. As a result, the huge diversity of borrowing costs from lenders depends on the amount of work and lending appetite.”
David Ross, Managing Director of HomeTrack, adds:
“There are some negative economic headwinds, but it’s encouraging to see the Bank of England maintain this historically low interest rate. This, when combined with stamp duty holidays, ensures that mortgage demand remains high, but it’s becoming increasingly clear that many potential home mortgages are missing out as there are fewer products available.”
In contrast, Fran Boait, executive director of the nonprofit research group, believes positive money should go further with support today.
“Our central bank is willing to help fund government spending to overcome this crisis, and we should accept that. Sadly, the Prime Minister appears to be spreading the irresponsible myth that even when government debt rates are negative and inflation rates are well below targets, there are still severe constraints on public spending.”
“Monetary policy alone is not enough. The fact that negative interest rates are considered should be a warning sign that the Prime Minister needs to spend more by drawing weight. The Treasury must take advantage of the increased headroom offered by the Bank of England bond purchases to fund public services, protect revenues and increase spending to commence green recovery.”
In fact, because interest rates are so low, this period should be considered Black Friday for public spending (and debt) as far as government is concerned. Baoit added that the Bank of England might even consider lending money spent on the Treasury overdraft of the government’s “methods and means.”
These suggestions make some sense. Spend big when you need it and when it’s cheapest to do so. On the other hand, we should not raise our noses on the issue of inflation. Like the OMFIF economist, Chris Papadopoullos said in April, inflation is a national money supply issue based on the amount borrowed and how long it lasts.
The Bank of England says the UK’s money supply is £2.2 trillion, which tends to grow by around 4% per year in the 2010s. And while changes in the money supply “rarely cause proportional changes,” they may give you the idea of the “magnitude of change.”
For example, Papadopoulos said: If you borrow £200 million for a year or two, you could increase your money supply by 10% and add a few percentage points to inflation. ”
Meanwhile, it is not unreasonable for the Bank of England to expand its support, as expanded by Cebu’s corporate bank economist Marcus. In fact, inflationary pressures should be taken into account, but the central bank’s forecast for 7+% growth in 2021 may still prove bullish, and therefore supplementing the supply of money may not be as painful as fear. Widen’s comments:
“The decision to expand the Asset Purchase Program (APP) more than expected must be seen in light of the rapid deterioration of the economic situation due to the second wave of Covid-19, which has hit the UK economy more heterogeneously than other countries (about £5 billion), a second wave of Covid-19 that has hit the UK economy more unevenly than other countries. The UK government has also expanded its financial support, which will likely continue, allowing the Bank of England (BOE) to continue its app. Naturally, the BOE has repeatedly said it is ready to do what it needs if Outlook becomes even more weak.”
“(…) The UK is not only affected by new broad lockdown measures, but also by its withdrawal from the EU single market at the end of the year (2020), so the uncertainty about what the UK economy will take in the short term is immeasurable.”
“Overall, the UK economy is in the phase of second wave COVID-19 restrictions and withdrawal from the EU single market, but with the BOE’s decision on a larger extension of the APP, we will buy banks for a while, but we cannot rule out anything more.”
