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Economic Indicator

Bailey speech: I don't think UK economy is close to recession

Source Fxstreet

In an interview with CNBC on Thursday, Bank of England (BoE) Governor Andrew Bailey said that they see the impact of tariff uncertainty coming through to business investment and consumers.

Key takeaways

"Impact of tariffs on exchange rates has not been that large for the UK."

"We are focused on the growth shock from tariffs."

"I don't think the UK economy is close to recession."

"Last GDP data was quite encouraging."

"Weak PMI data reflects companies' uncertainty."

"Talk about potential loss of dollar reserve currency status is overdone."

"I hope upcoming UK inflation bump will be transitory."

Market reaction

GBP/USD showed no reaction to these comments and was last seen gaining 0.35% on the day at 1.3300.

BoE FAQs

What does the Bank of England do and how does it impact the Pound?

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

How does the Bank of England’s monetary policy influence Sterling?

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

What is Quantitative Easing (QE) and how does it affect the Pound?

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

What is Quantitative tightening (QT) and how does it affect the Pound Sterling?

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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