Bank of England: Recurrence of Viruses Increases Economic Instability

The UK announced on Tuesday that Jonathan Haskel had been reappointed to the Bank of England’s (BoE) Monetary Policy Committee (MPC). Catherine L. Mann was also named to the MPC of the Bank of England. This change does not appear to be affecting the British pound’s performance against its key competitors. The GBP/USD pair was trading at 1.3895 at the time of writing, down 0.25 percent on the day. Meanwhile, at 0.8560, the EUR/GBP pair is hanging to small daily gains.

At this week’s meeting, the BOE will keep an enthusiastic tone. Nonetheless, given the risks, notably a third phase of the virus, which has led to confusion in restriction lifting, it would be premature to advise that monetary policy be tapered or the first-rate hike be pushed ahead.

Economic data released since the last meeting was strong. GDP growth accelerated to + 2.3% y / y in April, the highest level since July 2020, as pandemic-related restrictions were eased. The volume of services increased by + 3.4%, while the volume of production and construction activities decreased by -1.3% and -2%, respectively. April GDP remains 3.7% below the pre-pandemic level seen in February 2020. However, it is 1.2 p.p. above its initial peak of recovery in October 2020. Strong April data points to upside risks for the Bank of England’s forecast of 4.3% QoQ in 2Q21. The Confederation of British Industry (CBI) now projects GDP growth of + 8.2% this year and + 6.1% next year.

Investors Await Bank of England Meeting As GBP/USD Rebounds

Despite recovering a bid from daily swing lows, the GBP/USD pair maintained its offered tone headed into the North American session. The pair was last seen trading around 1.3885-80, down more than 0.30 percent on the day. Investors also appeared hesitant to make any risky trades, preferring to sit quietly ahead of the Bank of England meeting on Thursday.

Concerns about the EU-UK standoff over the Northern Ireland protocol, on the other hand, impacted heavily on the pound. In the most recent development, British Brexit Minister David Frost stated, “We’re trying to find answers, but the EU isn’t very engaged.” Frost went on to say that the delicate balance in the Northern Ireland Good Friday Agreement might be thrown off.

Amidst the unfavorable circumstances, the GBP/USD pair was able to establish some lower-level support. The COVID-19 data looks good, according to British Health Minister Matt Hancock, who believes the lockdown in England can be lifted completely on July 19. This appeared to be the only thing that gave the major some support and helped limit any more losses, at least for now.