Bank Of England Boosts Bond Buying By $124B, Maintains Bank Rate

The Bank of England announced on Thursday plans to expand its bond buying program by a further 100 billion pounds ($124.4 billion) to assist the U.K. economy through the economic downturn triggered by the coronavirus pandemic.

The program now totals 745 billion pounds and the bank rate was left unchanged at 0.1%.

Expect Another Top-Up This Summer: The decision made by the Bank of England was widely expected, and a further expansion is quite likely later in the summer, Kingswood CIO Rupert Thompson says in an emailed statement.

“The bank has been purchasing almost all the gilts issued in recent months to finance the covid-related support measures and would otherwise have reached its limit in July,” Thompson says. 

The bank rate has been left unchanged. While the Bank has been looking into the possibility of pushing rates into negative territory, this would be a move of last resort and is only likely if the economic recovery that is now starting to get underway runs into problems later in the year, the CIO says. 

Investors Expect More QE: The Federal Reserve and the European Central Bank have been doing more to keep their economies afloat. Some investors feel the Bank of England could do more.

“Given the immediate market reaction it appears investors were hoping for a little more than the £100 billion increase in quantitative easing that has been announced by the Bank of England,” says Hinesh Patel, portfolio manager at Quilter Investors.

Investors may have a point in being disappointed by Thursday's announcement given that the Federal Reserve and European Central Bank are both guiding the market that they will do whatever it takes to keep the economy afloat, the portfolio manager says. 

“But this move is understandable from the Bank of England. It is important these sort of policies move at a steady pace, and with economic data not as severe as previously expected the Bank has given itself some headroom should unemployment turn structural.”  

Patel On Bank Rate: Thursday's move quashes the notion of a negative rate policy in the U.K., Patel says. 

“However, should things go even worse from here, they have left themselves enough bond purchasing capacity in the future to continue soothing markets and the economy as best they can.” 

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