Next to Friday’s non-farm payrolls report, tomorrow’s Bank of England monetary policy announcement is the second most important event of the week. Like the Reserve Bank of Australia, the BoE is widely expected to leave policy unchanged. There is only a small chance of tapering, but there’s a very high chance of upgraded economic projections. The BoE has a lot to be optimistic about. The UK is leading the developed world in vaccinations, with more than half of its population receiving at least one dose of the COVID-19 shot. New daily virus cases have fallen below 2,000, which is a dramatic improvement from the more than 68,000 cases reported on Jan. 8. Along with a low double-digit to single-digit death toll, the UK economy is ready to reopen fully by ending all lockdown restrictions on June 21. Restaurants, pubs and gyms have been open for a few weeks, and the economy is already beginning to reap the benefits, with the PMI index rising to its highest level in 89 months. When the country fully reopens, we will see an even bigger boost to growth.
While the BoE anticipated a recovery, the momentum has been stronger than expected because of how fast the government managed to vaccinate more than half of the population. Combined with the robust recovery in the U.S. and inevitable reopening of euro-area nations, the outlook for the UK is clearer and brighter today than in February, when its last economic forecasts were released. In addition to raising its economic projections we also expect the BoE to lay the groundwork for summer tapering, which should reignite the rally in GBP.
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