The British Pound has risen following comments by the Bank of England's Governor Andrew Bailey that the rate will not be cut to 0% or below in the coming weeks. With the ongoing vaccine rollout and positive market sentiment about a quick economic recovery, the Bank appears to be willing to wait and see how the UK economy fairs before taking interest rates into negative territory.

Vaccine rollout

The government has promised to vaccinate 15 million people in the top four priority groups over the next five weeks and 17 million more in the five remaining groups by spring. According to the government’s immunisation plan, fifty special vaccination centres will support hospitals and doctors to provide 2 million jabs a week by the end of January.

The inoculation plan was unveiled on Monday as the NHS announced that 866,000 people in England were vaccinated the first week of January. On Monday, seven national vaccination centres opened in England, as well as 200 hospital sites and many GP centres. 50 more special centres will open by the end of the month. Many GPs believe that the 2m-a-week target can be achieved, despite MPs’ complaints in the parliament that the supply was chaotic.

More Vaccinations, Stronger Pound

The more people are vaccinated, the sooner the pandemic will be controlled, and the economy will recover. If everyone is strong and healthy, then the body of the economy and the country will also be strong and healthy. This will ensure a robust economy and will affect whether the Bank of England changes interest rates and its quantitative easing programme. If the BoE chose to lower interest rates, this would have been with the aim of stimulating lending and injecting a flow of money into the economy during the lockdown. However, such drastic measures would have pushed the pound lower. 

The governor of the BoE highlighted that there were too many concerns about negative interest rates, and that members of the Bank's Monetary Policy Committee debated their possible benefits. He has also warned that negative interest rates may hurt economic recovery and he appeared to be against such a move followed by such countries as Sweden, Denmark and Japan. He said: there are “a lot of issues” when considering using negative interest rates as a fiscal tool: “At first glance they are counter-intuitive.” He added: “First of all, no country has really used negative interest rates at the retail end of the market.”

There is, however, growing speculation after the recent comments by Silvana Tenreyro, a member of the Bank’s rate-setting Monetary Policy Committee, that using negative rates is a possibility and can be done without depriving the banking system. Interest rates have been at a historic low of 0.1% since last March in an attempt to protect the economy from the pandemic. If the possibility of negative interest rates is slowly reduced in the coming weeks, the pound is expected to get a further boost.

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