Pessimistic Comments by BOE’s Vlieghe Keeping the GBP in Check

Posted Tuesday, October 20, 2020 by
Skerdian Meta • 2 min read

The UK economy has been rebounding well since the reopening, with services and manufacturing activity getting back to normal. But, the new coronavirus measures will cause the economy to plunge again, and the Bank of England is not feeling optimistic about it. They predict a further economic slowdown and more job losses, as Gertjan Vlieghe said earlier today. This is keeping the GBP in check, with the GBP/USD stopping its climb and reversing 40 pips lower.


Comments by BOE policymaker, Gertjan Vlieghe

  • Not yet at a point where we can reach a conclusion on negative rates
  • It appears that downside risks are starting to materialize
  • Outlook for monetary policy is skewed towards adding further stimulus
  • The risk that negative rates will end up being counterproductive is low
  • QE is probably less potent now than in March
  • Risks are skewed towards even larger job losses
  • Difficult to see a scenario where all furlough workers can be reintegrated seamlessly
  • The speed of the recovery is likely to be slower while the virus remains a concern
Despite the constant half-hearted push back against negative rates, the fact that the BOE is acknowledging the need for more action and the shortcomings of other policy steps clearly indicates which direction they are leaning towards, going forward.
As the Brexit drama continues, economic data is going to start coming back into focus for the pound, as the recovery falters, at a time when fiscal aid may not be enough, and as the virus situation in the UK has the potential to worsen further in the months ahead.

Further comments by BOE policymaker, Gertjan Vlieghe

  • The BOE would have some tolerance for short-term inflation cased by a no-deal Brexit
  • The main concern about a no-deal Brexit revolves around business, consumer confidence and the exchange rate
The headline comment continues to make a case for negative rates to be introduced by the BOE in the future. A bit of a clarification on one of his earlier remarks here:

“My own view is that the risk that negative rates will end up being counterproductive to the aims of monetary policy is low.”

Add that to his comment that QE is being less effective, and it appears that Vlieghe is going be a staunch supporter of the central bank diving into a negative interest rate policy (NIRP).


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