Bank of England: "Volatile GBP trading is not too big a concern"? - UOB

Analysts at UOB Group explained that the BOE’s external MPC member, Michael Saunders, said during his testimony in UK parliament (11 Oct) that the volatile GBP trading is not too big a concern for the Bank of England.

Key Quotes:

"Given the scale and persistence of UK current account deficit, Saunders said he would not be surprised if sterling falls further. He also would expect the MPC to tolerate a modest currency-driven inflation overshoot in the next 2-3 years.

He noted that the UK Government has many more tools to resolve distributional effects of monetary policy than BOE does.

He emphasized that he does care a lot about whether distributional effects of QE reduce its effectiveness but he explained that the stack of factors not unique to UK have pushed down long-term interest rates. He opined that UK yields would be “relatively low” even if UK fiscal policy had been less tight in recent years.

He also opined that UK monetary policy is burdened but not yet overburdened and it is conceivable that MPC may need to extend monetary policy tool kit further in case of massive global downturn."