The Bank of England held rates at 0.1 per cent and offered no new stimulus measures in its asset purchase programme.
Decline in consumer confidence
Headline BoE announcement: 14% fall in UK GDP this year and unemployment at 8%. Biggest annual fall in GDP since 1706
The BoE said indicators of UK demand have generally stabilised at ‘very low levels’ with a reduction in the level of household consumption at around 30%.
According to the MPC statement, ‘Consumer confidence has declined markedly, and housing market activity has practically ceased’. Sales are seen at –45% in quarter two (Q2) , with business investment at -50%.
Fall in growth
In a ‘plausible illustrative economic scenario’, the BoE forecasts a fall in UK related world growth from 2% in 2019 to -14% in 2020, before bouncing back 15% in 2021 and 4% in 2022. Andrew Bailey, the new BoE governor, said there will be some long term damage to the capacity of the economy, but in the ‘illustrative scenario‘, these are judged to be relatively small. The BoE have to say something…
‘V’ shape recovery?
The Bank seems to be suggesting a ‘V’ shaped recovery. Other commentators suggest a ‘U’ or even a ‘W’ style of recovery. I think the BoE assessment is pretty optimistic. I think it more likely, for sometime yet at least, that there will be a profound and ongoing change to the way people travel, work, shop and play. This alone will slow the economic recovery. Businesses will be ready long before the consumer is.
Is more QE coming? Maybe not today. Two Bank of England members pushed for an additional £100 billion of QE.
Furloughed workers back anytime soon?
Is the assumption that all furloughed workers will get their jobs back? Sadly, I don’t think that is likely. The UK recovery will come, of course – but it will be a slow journey back to our ‘old’ normal now to be our ‘new’ normal – whatever that maybe? A big success with a vaccine or treatment will bolster confidence in society.
China data
Mind you, if the data released by China on Thursday is anything to go by, some economies could bounce back more quickly. Chinese exports are reported to have unexpectedly risen by 3.5% in April 2020 from a year earlier, after falling 6.6% in March 2020… (data from the General Administration of Customs). Some economists had expected around an 18% decline – that’s a big difference. The service sector suffered though.
I think it fair to say – we all have a long journey ahead of us, some longer than others…
Possible market moving news later today
News of U.S. jobless claims (unemployment) is to be announced at 13:30 BST. In the last 5 weeks some 26 million U.S. workers have lost their jobs and have made unemployment claims. This information is likely to move markets.