What to Expect From the Bank of England Today

(Bloomberg) -- The Bank of England decision on Thursday may focus more on assessment than action after an unprecedented third meeting of policy makers this month.

The coronavirus pandemic prompted officials to slash interest rates to a record low 0.1% and kick-start a new round of bond buying in two emergency moves in March. With markets now calmer and much of the central bank’s arsenal depleted, the first scheduled vote of Andrew Bailey’s tenure as governor may be a less dramatic affair.

Rate Limits

If policy makers want to do more, one option is a further expansion of quantitative easing. Last week, the target for the asset purchase program was increased by 200 billion pounds ($235 billion). The bank may also find more special measures to keep credit flowing.

Less likely is any move on rates, which now stand at an all-time low of 0.1%. Bailey has so far refused to entertain the idea of pulling the benchmark below zero, citing the potential risks to financial stability, although he has said all reasonable options will be considered if needed.

Big Slump

In a conference call with reporters following their most recent decision, Bailey said it was right to act, rather than waiting for evidence of how big the hit will be. The pandemic has shuttered businesses, put households in lockdown and ground vast swathes of the economy to a halt.

The data so far doesn’t look good. IHS Markit’s monthly measure of manufacturing and services activity dropped to the lowest since the series began in 1998.

That may not even capture the true extent of the downturn, as it was compiled before the government ordered the temporary closure of businesses such as pubs and restaurants late last week.

Taking Stock

With minutes of both the March 19 and 26 decisions set to be published Thursday, BOE watchers may gain some insight into the kind of analysis already being presented to policy makers. Bloomberg Economics forecasts the U.K. economy will contract at least 10% in the first half of the year, and should the current state of lockdown be extended to six weeks, output could shrink as much as 14%.

Government Stimulus

Bailey has insisted that the central bank still has more in the tank. The response so far equates to about 225 basis points of easing -- much of the 250 basis points that both he and predecessor Mark Carney argued was available before the economic shock -- but he believes that measures introduced to provide funding for large companies have since opened further space.

Bailey also said the BOE will continue to work in concert with the government’s fiscal stimulus, which is already bigger than the response to the global financial crisis a decade ago.

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