Pimco’s head of sterling portfolios, Mike Amey, said the Bank of England’s (BOE’s) Monetary Policy Committee had “embraced the view that if you decide to ease, then be aggressive”, describing the measures as a “comprehensive package”.
“When your economy is approaching the zero lower bound on interest rates and intermediate gilt yields are already well below 1 per cent, it makes sense to use what modest monetary scope you have as decisively as you can,” he said.
The Bank’s package includes a 25-basis-point cut to the bank rate, a new term funding scheme to reinforce the pass-through of the cut, the purchase of up to £10 billion of UK corporate bonds, and an expansion of the asset purchase scheme for UK government bonds of £60 billion.
Mr Amey noted that the asset purchase program is expected to spread over six months, and the bond purchase program is set for 18 months, suggesting monetary policy will be “highly accommodative for much of the cyclical horizon” and adding that this should aid gilt yields over time.
“Longer-term gilt yields should be supported by the BOE policy moves and the broader economic environment, whilst the British pound looks to have scope to go lower,” he said.
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