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Goldman Sachs View Following the BOE MPR

BOE
  • Goldman Sachs point out that "the MPC did not formally revise down the effective lower bound on Bank Rate. However, in the press conference…Governor Bailey was categorical in his assertion that negative rates were indeed feasible in the UK"
  • Goldman Sachs believes that the forward guidance: "signals that the MPC is likely to place more weight on realised data than on its own projections of the evolution of the data, thereby underscoring an aversion to the premature withdrawal of monetary stimulus."
  • GS forecast "the peak in the official unemployment rate is likely to exceed the 7.5% peak in the MPC's modal forecast. In part because of the severity of that labour market deterioration, we maintain the view that the Committee will ease monetary policy again before the turn of the year."
  • "We are sceptical that there exists one set of shocks for which the MPC would prefer to use negative rates and one set of shocks for which the MPC would prefer to conduct additional QE. The Governor made clear that rate cuts are not imminent, and we expect asset purchases to remain the tool of choice in the event that the downside risks to the MPC's August forecast crystallise later this year. It remains the case that opening up the effective lower bound on Bank Rate is likely to enhance the effectiveness of further quantitative easing. We continue to expect an additional £100bn in asset purchases to be announced alongside the November Monetary Policy Report."
  • On QE pace: "On our calculations, the maintenance of this purchase pace would imply that the MPC's current £745bn stock target is reached on the eve of the December policy decision"
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