No surprises from the Bank of England says Oliver Blackbourn, Multi-Asset Portfolio Manager at Janus Henderson Investors

It was no surprise that the Bank of England remained on hold today. Visibility about the next few months is increasingly muddy as the Bank struggles to deal with the uncertain impact of a global pandemic, a deceleration of fiscal support and the likely negative impact of the end of the EU transition period. Unemployment is likely to rise as the government winds down its support, but economic weakness could push down sterling, each sending inflation in opposite directions. The uncertainty has been reflected in the recent divergence in public addresses from those on the Monetary Policy Committee (MPC).

The future path of the recovery from the economic shutdown appears to divide the MPC. This is likely further hampered by the Chancellor’s request for official economic projections without considering any tax or spending plans. The Bank must await the Chancellor’s next moves to support the economy along with rest of us. On Brexit, the Bank is still tied by its desire to appear apolitical in public pronouncements. A comprehensive free trade deal seems a long away at the moment and the final agreement (or not) will have a huge impact in just over three months’ time.

Markets are sceptical as to whether the Bank can meaningfully react to the upcoming risks if needed. Negative interest rates remain an option with markets divided over whether they will actually be implemented. Just the mention of negative interest rates was enough to send sterling and gilt yields lower immediately after the release. However, for the moment, the UK stock market continues to benefit whenever the pound falls.