Morgan Stanley: Bank of England is on a path that leads to negative interest rates
Currency strategists of Morgan Stanley believe the rate will be kept at the level of 0.10%, and the volume of quantitative easing program increased by 100 billion pounds. However, the Bank believes that the rhetoric of the regulator will remain mild and will support expectations of further stimulation of the economy, which showed a 20% decline amid the pandemic and lockdown in April.
The collapse of consumer demand suggests eliminating the risks of inflation in the foreseeable future, which unbinds the Bank of England. In the next 18 months (June, November and May next year), Morgan Stanley expects the central bank to increase its asset purchase program by 300 billion pounds to 945 billion. Strategists say that as savings grow and emissions decline, quantitative easing will become less effective over time, so the Bank of England may use other mechanisms. Morgan Stanley recalls that the issue of negative rates was discussed by the regulator's management, and believes that in August it will signal readiness to further reduce the rate. MS expects the Central Bank to bring the rate to 0% in November, while it may introduce a negative rate as part of banking sector financing. Morgan Stanley notes that if economic growth continues to be disappointing, the Bank of England rate in 2021 may reach -0.50%.
Morgan Stanley expects that during this year GBP/USD will continue to move in a sideways range - the policy of the Bank of England and uncertainty about the issue of Brexit, which, apparently, will not occur this year, will compensate for the weakening of the US dollar. The bank's forecast for the third and fourth quarters is 1.25, and in the first quarter of 2021 it anticipates a decline to 1.22.