BOE: No policy change but keeping its options open - ING

ING's strategists note that BOE voted unanimously to leave policy unchanged today and further preparation for negative rates is likely to be taken as a vindication of market expectations and brings more downside risk to gilt yields. The same can be said for GBP as Brexit-related pressures compound.

"The Bank of England unanimously decided to keep the Bank Rate at 0.1% and the size of its asset purchase facility (APF) unchanged today."

"The absence of any dovish dissent in favour of an increase in the APF might have come as a surprise to some, but it is consistent with a committee that saw overall slightly less adverse economic developments than it expected in August. Risks, it noted, remain skewed to the downside."

"There was little in this assessment to validate near-term expectations of more easing at the November meeting. The central bank's main scenario is premised on the UK signing a comprehensive trade deal with the EU before 2021. In light of recent developments, this assumption is likely to be challenged by investors, thus resulting in more dovish pricing than today's MPC might imply."

"We remain confident that an increase in the APF is more likely in the near-term but, in its minutes, the MPC noted that the Bank is exploring plans to take interest rates below zero if necessary. It added that 'The Bank of England and the Prudential Regulation Authority will begin structured engagement on the operational considerations in 2020 Q4'."

"From the point of view of the rates markets, the escalation in the Bank's communication around negative interest rates policy (NIRP) is likely to be seen as a vindication of existing expectations. The timeframe for the implementation/operational study and engagement confirm that these would be more of a 2021 story."

"GBP took a hit as official discussed the effectiveness of negative interest rates. The market has already been pricing a modest chance of negative rates and today’s meeting confirms this bias."

"While clearly negative for GBP, we continue to see the UK-EU trade negations as the chief driving factor of GBP in coming weeks, with the success or the failure to agree on a (reasonable) trade deal also determining the odds of BoE negative interest rates."

"This means that the potential GBP negative from the failed UK-EU trade negotiations would be further exaggerated by the BoE likely moving rates into negative."