© Reuters.

Yasin Ebrahim

Investing.com – The pound eased from fresh five-month highs on Thursday even as the Bank of England governor Andrew Bailey backed the central bank’s optimistic tone on the U.K. economic recovery.

rose 0.38% to $1.3149, though had hit fresh five-month highs of $1.3186 earlier in the session.

Bailey told CNBC in an interview that he would “really lean back on people who think the Bank of England is optimistic.”

The remarks come as the central bank adopted a less dovish tone than many had expected in its monetary policy report after keeping interest rates unchanged at 0.10%.

In its outlook on the economy, the central bank estimated that the economic impact of the coronavirus pandemic would be less than initially feared.

Inflation was expected to return to target in just two years and GDP to fall 9.5% for the year, well below the previous forecast for a 14% decline.

The BoE “has become less dovish, and accordingly rewrote its guidance on the likely direction of future policy,” Daiwa Capital Markets said a note.   

The central bank also tipped its hat to the prospects of cutting rates below zero, with Bailey suggesting negative interest rate policy (NIRP) was in the policy toolbox, though if and when such a tool could be used remains uncertain.

“So, while the MPC acknowledged that the risks to the growth outlook remain hugely skewed to the downside, for the time being it sees no need for additional stimulus,” Daiwa Capital Markets added.

 

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