The pound against the US dollar (GBPUSD=X) jumped in early trading on Thursday after the Bank of England (BOE) held interest rates and hopes increased that UK lockdown will start easing imminently.
The central bank held its benchmark interest rate at 0.1% and maintained its pace of asset purchases to lift the economy during the coronavirus crisis. Meanwhile, prime minister Boris Johnson suggested that lockdown rules could be eased as early as 11 May, in order to open up the economy.
Sterling against the dollar rose on sentiment, reaching $1.23 by 7.30am local time.
Central banks cut interest rates as a way to stimulate the economy. Lower rates makes borrowing cheaper and therefore alleviates the cost of paying off debt. While holding rates signals partially that the central bank does not need to use any further measures. The BOE, however, has warned that the UK faces a “very sharp” fall in economic growth.
It said that the country’s gross domestic product (GDP) could shrink by 14% in 2020, noting that there would be a “substantial increase” in unemployment in the first half of 2020 — even beyond those who are already furloughed.
It is for this reason the UK government has been under pressure to deliver a lockdown exit strategy despite being one of the worst countries in the world affected by the coronavirus pandemic.
Britain became the first country in Europe to record more than 30,000 deaths from coronavirus — counting deaths from hospitals, care homes and the wider community. The UK government has also failed to, at any point, reach its target of testing 100,000 people a day.
However, there is pressure to start easing lockdown measures in order to keep the economy running and people in jobs.
Under law, with the aid of scientists and data, the UK government reviews the results of the lockdown. The prime minister will announce the decision on Sunday (10 May).
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