Morgan Stanley has updated its call on Bank of...>

UK: Morgan Stanley has updated its call on Bank of England rate policy and now

look for a 10bp cut to zero in November with banks able to access the Term

Funding Scheme at negative rates.

- "We see a general case for easier policy with inflation below target and a

wide output gap. But negative policy rates may undermine bank profitability and

the supply of credit, especially as NPLs rise. Here, we see the provision of

cheap term funding - like the ECB, at a spread below the main policy rate - as a

tool to mitigate a post-pandemic tightening of credit standards. We now expect a

November rates package to support the recovery, with Bank Rate going to zero and

TFS to a spread of 25bp below Bank Rate. We see a modest 10% chance of Bank Rate

going negative in 2021."

- On QE, Morgan Stanley look for another GBP200bln of QE this year with

GBP100bln of that announced at the June meeting.