Bank Of England: Cautious Optimism Reduces Need For Negative Rates This Year
The rapid vaccine rollout and the corresponding likelihood of a spring recovery has taken the pressure off the Bank of England to offer further stimulus. Policymakers will be careful not to shut the door on negative rates, but we don't expect further rate cuts this cycle.
The brighter outlook has taken the pressure off the Bank
The Bank of England is poised to unveil its latest decision this Thursday, and it’s now widely expected that policymakers will shy away from taking the plunge into negative interest rates this month. In fact, we think it’s unlikely they will do so at all in this cycle.
The outlook is brighter, and we expect the Bank’s new forecasts to continue to signal a full economic recovery around the turn of the year (albeit with some inevitable downgrades to growth this quarter). We are a little more cautious - we expect the combination of higher unemployment and ongoing disruption related to Brexit to prevent a full return to pre-virus levels for at least another 18 months.
But the conclusion is the same - with the vaccine rollout going well, and cases now falling rapidly, there is a good chance that the economy will record a rapid bounce in activity through the middle of the year. That in turn reduces the pressure to inject additional stimulus.
The BoE's November forecasts assumed more-or-less a full recovery this year
(Click on image to enlarge)
Source: Bank of England, ING
Negative rates unlikely this cycle, but don't expect the BoE to close the door on them
Of course, there are plenty of uncertainties in the outlook - not least how the new Covid-19 strains will affect the current batch of vaccines and therefore the need for future restrictions. But even so, what’s become increasingly evident from MPC commentary over recent weeks is that the willingness to enact negative rates is mixed.
Some ‘external' committee members, most notably Silvana Tenreyro, have signaled it is a move they are willing to make - though we suspect there won’t be any dissent this week. But the overall majority, including Governor Andrew Bailey, have played up some of the challenges.
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Bert Colijn is a Senior Eurozone Economist at ING. He joined the firm in July 2015 and covers the global economy with a specific focus on the Eurozone. Prior to this, he worked at The Conference Board, a global think-tank, in Brussels focusing mostly on long-term economic growth. He holds an undergraduate and graduate degree in International Economics and Business from the University of Groningen.
Carlo is an Economist at ING and has been with the firm since January 2016. He is mainly interested in the future of banking, blockchain and virtual currencies. He began his career at Barings Asset Management and holds an MSc in Economics. 
Inga Fechner is an economist at ING in Germany, covering international economic developments with a specific focus on Austria. She joined the company in 2014 after graduating in Economics from the University of Münster, with studies abroad in Japan and Italy.
Marieke Blom is the Chief Economist at ING in the Netherlands.
Maurice van Sante is a Senior Economist covering the construction and real estate sectors. He joined ING in 1998 and till 2006 he was a treasury advisor and cash manager consultant. Maurice studied Economics at the Erasmus University in Rotterdam.
Peter Vanden Houte is Chief Economist Belgium, Eurozone and has been working with ING in various research functions for the last 20 years. He is also chairman of the “economic commission” at the Belgian Employers Federation.
Robert Carnell is Chief Economist and Head of Research, Asia-Pacific, based in Singapore. For the previous 13 years, he was Chief International Economist in London and has also worked for Commonwealth Bank of Australia, Schroder Investment Management, and the UK Government Economic Service in a career spanning 24 years. Robert has a Masters degree in Economics from McMaster University, Canada, and a first-class honours degree from Salford University.
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