BoE: raising stock to sustain the flow
- The prevailing state of the UK economy is unrecognisable relative to the BoE's last monetary policy report. Substantial downgrades are unavoidable, but so is the uncertainty around it. Shutdown scenarios should indicate some sensitivities.- Damaged balance sheets will prevent a full and rapid recovery, supporting ongoing stimulus. With little hope for imminent normalisation and serious downside risks from secondary shutdowns, I expect the BoE to sustain its asset purchase pace.
- A slower pace of purchase would be needed to avoid hitting the current target stock before August. As that is undesirable amid sustained heavy gilt issuance, I expect the BoE to announce a £55bn increase to £700bn, with little point waiting.
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