Bank of England Governor Andrew Bailey commented that while the bank is realistic about the potential challenges negative interest rates could pose to the UK financial system, they are not ruling out imposing them as an attempt to help the economy’s performance.
Last week, the pound recovered from last week’s loss, gaining 1.46 percent to close Friday’s session at 1.2931.
Talks between the UK and the European Union resumed last week, hinting at the possibility of a Brexit trade deal. Despite the latest round of official negotiations ending without any significant progress, European Commission President Ursula von der Leyen spoke with British Prime Minister Boris Johnson, agreeing on the importance of finding an agreement and assuring both sides that reaching an agreement is possible.
The pound rose ahead of Friday’s meeting, closing the session and the week in positive territory, recovering from last week’s 1.32 percent loss.
Last week the markets received some important information about the state of the British economy. The Bank of England reported on Tuesday that net lending to individuals was £3.4bn in August, down from £3.9bn in July (monthly). Consumer loans were £0.3bn in August, after £1.052bn the previous month and below analysts’ expectations of £1.45bn.
On a monthly basis, the M4 money supply fell by 0.4 percent in August, after growing by 0.8 percent in July and well below the forecast of 1.3 percent of surveyed analysts. On an annual basis, the money supply grew by 12.1 percent in August, after being at 13.4 percent in July. Mortgage approvals rose, from 66,300 in July to 84,700 in August, beating analysts’ expectations for a 71,000 expansion. The trade price index was at -1.6 percent in August (year-on-year), unchanged from the previous month.
Bank of England Governor Andrew Bailey commented that while the bank is realistic about the potential challenges negative interest rates could pose to the UK financial system, they are not ruling out imposing them as an attempt to help the economy’s performance.
“That doesn’t mean we rule out for a moment the use of negative interest rates,” he said after pointing out that the large proportion of retail deposits in the UK banking system could undermine the effectiveness of imposing negative cash rates, “That means saying that we are realistic enough, I think, to know that the transmission mechanism would be affected,” he added.
On Wednesday, the Office for National Statistics reported that total business investment was -26.1 percent in the second quarter (year-on-year) after a 31.3 percent decline in the previous quarter. On a quarterly basis, it fell by -26.5 percent after falling 31.4 percent in the previous quarter.
Home prices nationwide rose 0.9 percent (monthly) in September, after rising 2 percent in August and beating analysts’ expectations of a 0.5 percent rise. On the annual level, apartment prices rose by 5 percent, after rising by 3.7 percent in the previous month and above the 4.5 percent expected by analysts.
The current account for the second quarter came in at £2.8 billion, below analysts’ expectations of -0.4 billion, and after the previous quarter’s figure of -20.814 billion pounds. Gross domestic product shrank 19.8 percent in the second quarter (quarter on quarter), better than expected, and improved from the previous quarter’s 20.4 percent decline. On an annual basis, gross domestic product fell by 21.5 percent, following a 21.7 percent decline in the previous quarter.
On Thursday, Markit Economics along with the Chartered Institute of Purchasing & Supply reported that the manufacturing sector expanded in September, announcing that the manufacturing PMI came in at 54.1, although slightly worse than August’s 54.3.
Bank of England‘Chief Economist Andy Haldane pointed out that the economy was recovering faster than expected, saying that the conditions for imposing negative rates were not yet met.