European session review: GBP weakens as UK-EU trade talks lack progress and BoE's policymakers warns of bigger risks for Britain’s economy

GBP fell against its major rivals in the European session on Thursday, weighed down by gloomy outlooks for Britain’s economy from the Bank of England's (BoE) policymakers and a lack of progress in UK-EU talks on a post-Brexit deal.

The BoE's Monetary Policy Committee (MPC) member Gertjan Vlieghe said on Wednesday that there was "a material risk" that it could take several years for Britain’s economy to return to full capacity after its coronavirus shock. Vlieghe also added that some sectors might not be able to return to their pre-pandemic size, leading to a reorientation of the economy. Meanwhile, the BoE's deputy governor Dave Ramsden said that the BoE had estimated the level of Britain's economic output would permanently be about 1.5 percentage points lower than it would have been without the pandemic. He also reiterated that the BoE had "headroom to do materially more QE if we need to". 

The European Union’s (EU) chief Brexit negotiator Michel Barnier said that they didn’t see any change in the position of the UK on key sticking points in talks on a post-Brexit trade deal and that he was “worried and disappointed” over the UK’s approach. “We didn’t see any change in the position of the UK, which is why I expressed publicly what I say, that I am worried and I am disappointed because, frankly speaking, we have moved, shown in many issues real openness in the past months,” Barnier said.