Thomson Reuters Regulatory Intelligence COVID-19 COVERAGE - United Kingdom September 7, 2020
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Thomson
Compiled by Publisher's Staff. 1 Reuters Regulatory Intelligence
COVID-19 COVERAGE – United Kingdom
September 7, 2020
The COVID-19 pandemic has created unprecedented challenges for compliance
professionals around the world, including those in the UK. The following is a selection of
UK and constituent countries actions as well as news and analysis articles compiled by the
Thomson Reuters Regulatory Intelligence editorial staff. The selection includes Regulatory
Intelligence and Reuters news coverage. More COVID-19 news and information can be
found via the TRRI platform's search facility.
Additional COVID-19 resources are also available on the Thomson Reuters COVID-19
Resource Center.
Users can create your own custom My Updates through the Create a Custom My
Updates link on the Regulatory Intelligence homepage. Select your geography and/or
content types you would like resources from and include the following keyword search:
COVID! or coronavirus.
IN THIS OVERVIEW
COVID-19 LEGISLATIVE AND REGULATORY ACTIONS
UK Actions
Scotland
Wales
Northern Ireland
Isle of Man
OTHER NEWS AND SUMMARIES
Workplace surveillance under COVID-19 – complexities and risks grow for firms,
employees
IMPACT ANALYSIS: UK regulators provide guidance on payment deferrals
UK FCA has deployed third of staff on COVID-19 work, board minutes reveal
Bank of England policymakers warn of bigger risks for UK economy
UK economy might take years to recover from COVID hit - BoE's Vlieghe
Sterling drifts lower as BoE policymakers warn of deeper economic damage
UK mortgage approvals jump as housing market bounces back
'Go big and fast' - BoE's Bailey says bond-buying best in times of crisis
1
This COVID-19 Coverage was compiled by Thomson Reuters Regulatory Intelligence editorial staff.
© 2020 Thomson Reuters. All rights reserved.COVID-19 COVERAGE – UNITED KINGDOM
LEGISLATIVE AND REGULATORY ACTIONS OF THE HOME NATIONS
ENGLAND
The Health Protection (Coronavirus, International Travel) (England) (Amendment) (No.
11) Regulations 2020 amend The Health Protection (Coronavirus, International Travel)
(England) Regulations 2020 by removing Czech Republic, Jamaica and Switzerland from,
and adding Cuba to the list of exempt countries regarding self-isolation requirements,
among other matters.
Coronavirus Act 2020, UK ST 2020 c. 7 (Royal Assent 25 March 2020)
No new actions.
Financial Services and Markets Act 2000 (Regulated Activities) Order
No new actions.
The Financial Services and Markets Act 2000 (Exemption) (Amendment) Order 2020 2
No new actions.
Individual Savings Account Regulations 1998
No new actions.
The Income Tax (Exemption for Coronavirus Related Home Office Expenses) Regulations
2020
No new actions.
Value Added Tax Act 1994
No new actions.
The Taking Control of Goods and Certification of Enforcement Agents (Amendment)
(Coronavirus) Regulations 2020
No new actions.
The Value Added Tax (Extension of Zero-Rating to Electronically Supplied Books etc.)
(Coronavirus) Order 2020
No new actions.
Accounts and Audit (Coronavirus) (Amendment) Regulations 2020
No new actions.
The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations
2020
No new actions.
The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020
No relevant new actions.
2
Links to the TRRI Regulatory Guidance Summary for this provision and not the original text of the legislation.
© 2020 Thomson Reuters. All rights reserved.The Statutory Sick Pay (General) Regulations 1982
No relevant new actions.
The Health Protection (Coronavirus, Wearing of Face Coverings in a Relevant Place)
(England) Regulations 2020
No relevant new actions.
The Statutory Sick Pay (Coronavirus) (Funding of Employers’ Liabilities) Regulations 2020
No new actions.
COUNTRIES ACTIONS
Scotland
The Health Protection (Coronavirus) (International Travel) (Scotland) Amendment (No.
11) Regulations 2020 amend The Health Protection (Coronavirus) (International Travel)
(Scotland) Regulations 2020 by removing Czech Republic, Jamaica and Switzerland from,
and adding Cuba to the list of exempt countries regarding self-isolation requirements,
among other matters.
Coronavirus (Scotland) Act 2020 asp 7 certain provisions will expire on September 29,
2020.
Coronavirus (Scotland) (No.2) Act 2020 asp 10 certain provisions will expire on September
29, 2020.
The Health Protection (Coronavirus) (Restrictions) (Scotland) Regulations 2020
No relevant new actions.
Wales
The Health Protection (Coronavirus, International Travel) (Wales) (Amendment) (No. 7)
Regulations 2020 and The Health Protection (Coronavirus, International Travel) (Wales)
(Amendment) (No. 8) Regulations 2020 amend The Health Protection (Coronavirus,
International Travel) (Wales) Regulations 2020 by removing Czech Republic, Jamaica and
Switzerland, the Greek territories of Antiparos, Crete, Lesvos, Mykanos, Paros and
Zakynthos, Portugal (with the exception of the Azores and Madeira), French Polynesia and
Gibraltar from the list of exempt countries regarding self-isolation requirements. The
regulations also add and adding Cuba and Singapore to the list of exempt countries,
among other matters.
The Health Protection (Coronavirus Restrictions) (No. 2) (Wales) Regulations 2020
No relevant new actions.
Northern Ireland
The Health Protection (Coronavirus, International Travel) (Amendment No. 8) Regulations
(Northern Ireland) 2020 amend The Health Protection (Coronavirus, International Travel)
Regulations (Northern Ireland) 2020 by removing Czech Republic, Jamaica and
Switzerland from, and adding Cuba to the list of exempt countries regarding self-isolation
requirements, among other matters.
© 2020 Thomson Reuters. All rights reserved.Health Protection (Coronavirus, Wearing of Face Coverings) (Amendment) Regulations
(Northern Ireland) 2020
No new actions.
The Health Protection (Coronavirus, Restrictions) Regulations (Northern Ireland) 2020
No relevant new actions.
The Business Tenancies (Coronavirus) (Restriction on Forfeiture: Relevant Period)
(Northern Ireland) Regulations 2020
No new actions.
The Rates (Coronavirus) (Emergency Relief) Regulations (Northern Ireland) 2020
No new actions.
The Statutory Sick Pay (Coronavirus) (Funding of Employers’ Liabilities) (Northern Ireland)
Regulations 2020
No new actions.
The Working Time (Coronavirus) (Amendment) Regulations (Northern Ireland) 2020
No new actions.
The Discretionary Support (Amendment No. 2) (COVID-19) Regulations (Northern Ireland)
2020
No new actions.
Isle of Man
Emergency Powers (Coronavirus) (Entry Restrictions) (No.2) Regulations 2020
No new actions.
Proclamation by the Governor in Council
No new actions.
Emergency Powers (Coronavirus) (Information Sharing) Regulations 2020
No new actions.
OTHER NEWS AND SUMMARIES
Workplace surveillance under COVID-19 – complexities and risks grow for
firms, employees
(Regulatory Intelligence) - Employee surveillance is riddled with challenges, both legal and
ethical, under normal times. Given the COVID-19 pandemic and increase in remote
working, new issues have emerged that many companies are likely to have been
unprepared for, say behavioural experts. 3
3
Henry Engler, Workplace surveillance under COVID-19 – complexities and risks grow for firms, employees,
Regulatory Intelligence (September 03, 2020) at http://go-ri.tr.com/vOauT1
© 2020 Thomson Reuters. All rights reserved.A new study by Ethical Systems, a non-profit research group, said the emergence and
spread of new technologies have enabled companies to monitor their employees in ways
never imagined, raising a host of ethical issues of which they should be aware.
“As technological limitations recede, the implementation of surveillance has accelerated,
and if organizations go with the flow or follow their peers, they will likely cross many
ethical thresholds enabled by the justification that ‘everyone is doing it,’” said the report,
authored by Brian Harward, a behavioural scientist and technology expert.
While there are clear benefits of being able to monitor employees, some of which include
enhanced productivity and spotting potential misconduct, there are also drawbacks,
specifically on employee morale and behaviour.
Indeed, if surveillance is used to prevent bad behaviour, awareness of such monitoring
might have the opposite effect on employees, says the study. “The very type of bad
behaviour monitoring may be used to remedy can actually worsen in response to the
monitoring itself, a cost that may far outweigh the intended benefits,” the report said,
citing recent evidence.
“When employees are granted more freedom to self-manage, while surveillance is also in
place, the benefits of self-management (i.e. trust and decreased counterproductive work
behaviours) are likely to remain unrealised.”
Employees in financial services under constant surveillance
Surveillance has been a continuously contentious issue in banking and finance. Many
employees understand what they are getting into when they agree to work for a large
financial organisation. But that doesn’t mean that firms can get away with anything. Earlier
this year, a UK industry surveillance report found that 94% of 15 globally important firms
it surveyed planned some (69%) or significant (25%) investment in employee surveillance
in 2020.
The findings came against increased concern over employee workplace psychological
safety by one of the UK’s top regulators, the Financial Conduct Authority. The UK’s Banking
Standards Board, an industry group focused on culture and conduct, also expressed
worries over employee well-being in its most recent survey. In the four years the BSB has
been running its survey, one figure has never shifted: one in four employees has reported
that their job was damaging their mental health.
How surveillance impacts employee mental health is one of the unintended negative
consequences, the Ethical Systems study found. “Stress from technology presence and
usage is often called techno-stress, while technology-reducing privacy can be referred to
more specifically as 'techno-invasion,'” the report said. “These invasive uses of technology
are significant predictors of workplace stressors and burnout.”
COVID-19 presents new difficulties
While much of the Ethical Systems study was focused on the pre-coronavirus period,
Harward told Regulatory Intelligence that the health crisis and shift to employees working
remotely can lead to new challenges, both for the employee and companies.
“Surveillance is harder to conduct at distance and less welcome,” said Harward. The rapid
emergence of the virus may have caught many firms off-guard in terms of their ability to
monitor employees effectively while working remotely, he said.
According to Harward, some of the issues that can be exacerbated, or exist only for remote
surveillance, might include:
© 2020 Thomson Reuters. All rights reserved.• Surveillance will likely be greater for those with less power, fewer choices.
• Psychological safety and creativity will likely suffer from the compounding effects of
surveillance and remoteness.
• Surveillance tech may invade your home or your personal devices, possibly leading to
the feeling that you are always at work.
• Casual or social communications will be assumed to be monitored, stifling
connectedness.
• Counterproductive employee behaviour may be more likely at a distance, justifying strict
monitoring.
• Many will struggle to be motivated at a distance compared to being present "at work".
• Trust in software, the companies providing it, and disclosure of capabilities will be major
issues.
• Granularity of tracking/monitoring are likely to increase, making pressures more
immediate, and the increasing strain from being "on stage".
• Frustration with opportunity costs (being at home, but forced to work and be watched).
• Some work styles will be less compatible with remote monitoring, negatively affecting
those individuals.
• Certain industries may be required to monitor files and people more for compliance
purposes.
• Companies could do a form of location monitoring or contact tracing and misuse it.
While the financial industry was able to almost seamlessly shift to a remote working
environment without little apparent consequence, Harward wonders whether that
transition came with much less company surveillance capabilities than what firms have
when employees are in the office.
“I have this gut feeling that the people who got to go remote were lucky and probably
escaped some of the surveillance the company would have set up if they had more time,”
said Harward.
IMPACT ANALYSIS: UK regulators provide guidance on payment deferrals
(Regulatory Intelligence) - The UK Financial Conduct Authority (FCA) has asked for
comments on draft guidance on payment deferrals granted to mortgage customers as a
result of the COVID-19 pandemic. The regulator explains that, when the existing payment
deferrals come to an end, if the borrowers involved are unable to resume payments in full
immediately with all deferred sums either paid in full or capitalised, tailored forbearance
arrangements provided in accordance with the draft updated guidance should be
considered. 4
During the initial phase of the pandemic, payment holidays provided mortgage borrowers
with immediate temporary support. They have helped millions of consumers through
the effects of the coronavirus emergency and enabled firms to provide support on an
unprecedented scale. Many customers who took a payment holiday are expected to
resume full repayment but some will remain in financial difficulty.
4
Mike Cowan, IMPACT ANALYSIS: UK Regulators provide guidance on payment deferrals, Regulatory
Intelligence (September 03, 2020) at http://go-ri.tr.com/nCDMQ4
© 2020 Thomson Reuters. All rights reserved.The guidance will continue to provide support for those affected by coronavirus until
October 31, 2020, with consumers able to take a first or second three-month payment
deferral. The FCA expects the current guidance to expire on October 31 but will keep this
under review depending on how the wider situation develops.
The new draft guidance supplements the FCA's earlier guidance, "Mortgages and
coronavirus: Updated guidance for firms" (the June guidance) and sets out the FCA's
expectations of firms in relation to dealing with customers who:
• are unable to resume payments after two payment deferrals granted under the
June guidance;
• have benefited from an initial payment deferral that expires at a time when the
June guidance is no longer in effect; or
• experience payment difficulties as a result of circumstances relating to coronavirus
at a time when the June guidance is no longer in effect (whether or not they have
benefited from a payment deferral or other support under the June guidance).
In a parallel communication the Prudential Regulation Authority (PRA) has amended its
guidance on indicators of significant increases in credit risk (SICR). On March 26 and
June 4, 2020, the PRA wrote to banks and building societies on the consistent application
of IFRS 9 and the regulatory capital requirements to COVID-19-related payment deferrals.
The PRA guidance explained that COVID-19-related payment deferrals were being made
widely available to borrowers requesting a deferral and were therefore not based on the
individual financial circumstances of the borrower. As a result, they were not necessarily
good indicators of SICR, credit impairments or defaults.
The PRA has now said, however, that the proposed tailored forbearance arrangements are
likely to be as good an indicator of SICR, credit impairments or defaults as forbearance
was prior to the pandemic, although this may not be the case for loans made outside of
the UK.
Prior to COVID-19, loans subject to forbearance would not automatically have been treated
as having experienced a SICR or become credit-impaired or in default, and that will also
be the case with tailored forbearance provided in accordance with the draft updated
guidance. Where the position is not clear-cut, the guidance in the PRA's June 4 letter on a
framework for making holistic assessments of loans subject to payment deferrals for
indicators of SICR or credit impairment will be relevant when making that judgement.
FCA guidance
The FCA guidance falls into the following categories:
Customers unable to resume full payments at the end of a payment deferral
period
If the customer indicates that they continue to face payment difficulties, the firm should
work with the customer to resolve these difficulties before payments are missed.
Customers should receive appropriate forbearance that is in their interests after
consideration of their individual circumstances.
The guidance outlines suggested practices that may be appropriate depending on the
customer's situation. These include:
© 2020 Thomson Reuters. All rights reserved.A firm should contact customers in good time before the end of a payment deferral period
and give them information about the resumption of payments and on how to access further
support, if needed. This was included in the June guidance.
• Unless the customer objects, firms may capitalise the deferred amounts.
• In line with MCOB 13 firms have flexibility and scope to tailor their approach to
meet the challenge of many customers needing assistance at the same time.
• Firms may use automation tools for various procedures.
• Firms may want to identify certain cohorts of customers coming to the end of
payment deferrals under the June guidance, for whom a short-term period of
forbearance is likely to be appropriate, rather than undertaking a full assessment
of their individual circumstances straight away. A written policy covering how this
will be achieved should be in place.
• Guidance on when a payment shortfall should be recognised and the steps to take
where such a shortfall has been identified.
CRA reporting
The FCA expects normal CRA reporting to resume at the end of payment deferral periods
taken under the June guidance. It expects firms to resume normal reporting from the
payment status that was "frozen" at the start of the payment deferral period, to preserve
the benefit of having no worsening status reported during payment deferral periods.
Any further forms of support, including, for example, further full or partial payment
deferrals offered as forbearance, are to be reported to credit files in the usual
manner. Firms should ensure they are clear about the credit file implications of any forms
of support offered to customers, including the rescheduling or refinancing of accounts.
Delivering effective forbearance in the current environment
The FCA expects firms to be flexible and employ a full range of short- and long-term
forbearance options to support their customers and minimise avoidable financial distress,
stress and anxiety experienced by customers in financial difficulty. The guidance includes
a number of suggestions:
• Short-term arrangements under which the firm permits the customer to make no,
or reduced, payments for a specified period. For example: (a) extending the term
of a mortgage; (b) changing its type (e.g., from a capital and interest repayment
mortgage to an interest-only mortgage); or (c) deferring payments due under
it. Firms should, however, avoid taking a one-size-fits-all approach and a firm
offering a single solution to all customers is unlikely be compliant with this
guidance, or with MCOB 13.
• Firms should review customers' arrangements regularly, to ensure that their
circumstances have not changed and the support remains appropriate. Effective
customer engagement is particularly important where customers may be
experiencing significant uncertainty, stress and anxiety about their wellbeing and
financial circumstances due to coronavirus. It is important that firms enable case
handlers to keep, and subsequently refer to, clear records of interactions with
consumers, including their individual circumstances and any judgements made, to
give consumers continuity and support.
© 2020 Thomson Reuters. All rights reserved.• Firms should ensure customers receive timely information to enable them to
understand their financial position, their options and the implications of any
arrangements.
• Firms should establish and implement clear, effective and appropriate policies and
procedures for the fair and appropriate treatment of customers whom the firm
understands, or reasonably suspects, to be particularly vulnerable.
• Firms should adopt a quality assurance approach that reviews the end-to-end
process, rather than focusing on individual interactions in isolation.
• Firms should ensure staff are adequately trained for the roles that they perform
and have appropriate oversight arrangements in place.
Repossessions
Once the June guidance is no longer in effect, firms may start or continue possession
proceedings against customers in accordance with MCOB 13 and applicable pre-action
protocols. Possession action should not be started until all other options have been
exhausted.
Considerations for risk and compliance officers
The timeframe was tight for responding to the FCA — responses were requested by
September 1 — but irrespective of this compliance officers should consider the extent to
which their processes comply with the guidance. In many ways, however, the guidance
is a "retrenching" of the FCA's view back to MCOB 13. Whereas in the past three months
some leniency may have been provided, this guidance begins to restate the business-as-
usual rules in MCOB.
Compliance officers need to make policy owners aware of the guidance so that policies and
procedures can be changed where necessary. Compliance officers will already have
dedicated procedures for horizon-scanning and communicating upstream risk. These
processes can be used to agree any actions that need to be undertaken within the
firm. The main area affected by these changes, however, may be compliance monitoring
functions.
For mortgage firms, payment deferral and arrears handling will have been a priority for
inclusion in monitoring plans. Compliance officers need to review monitoring plans in line
with the new guidance to amend content and timelines where appropriate. Monitoring
plans should include a short review of whether the appropriate information is being sent
to credit reference agencies in a timely manner and whether changes to this process are
being managed appropriately.
The use of forbearance options will already be included in compliance monitoring reviews
but a sense check against this guidance will reassure compliance officers that forbearance
options are being used in line with the guidance.
Communication strategies should also be tested to ensure both that documentation has
the correct tone and that telephone (and other) contact is being undertaken at the right
time and in the right manner.
Finally, other areas such as the treatment of payment shortfalls, the training and
competency of operational staff and the handling of repossessions should also be included
in the compliance monitoring plan.
© 2020 Thomson Reuters. All rights reserved.From a risk perspective, credit and prudential risk officers should satisfy themselves that
their firms' treatment of impaired loans is consistent with the PRA guidance and with the
Capital Requirements Directive and IFRS 9.
Risk and/or compliance officers should also review any management information that is
used to identify affected customers to establish whether it is accurate, and formulae are
being applied consistently.
UK FCA has deployed third of staff on COVID-19 work, board minutes reveal
(Regulatory Intelligence) - The UK's Financial Conduct Authority (FCA) has deployed
around a third of staff on COVID-19 related work requiring a reprioritisation of four
business priority strategies, according to recently published board minutes. The FCA
employs 4,242 staff and many of those deployed on COVID-19 will reside in supervision
or policy, however pandemic-related work was being done across most departments, said
officials. 5
"The board was briefed on the detail of the four business priority strategies: safe and
accessible payments; ensuring consumer credit markets work well; fair value in a digital
age and; enabling effective consumer investment decisions. The board recognised that
around a third of FCA staff were now deployed on COVID-19 related work. In response to
these immediate resource pressures, a reprioritisation exercise had been undertaken and
strategy workplans phased. However, further reprioritisation regarding resourcing for the
rest of 2020/21 was required," the July board minutes said.
The FCA has already delayed the publication of four consultation papers and 22
publications and "other activities". It has delayed eight final rules and two calls for input.
A list of all COVID-19 delays, available on the FCA website, was updated today. It was
impossible to see what changes, if any, were made, however, a spokesman confirmed the
"Accessing and using wholesale data" call for input has been delayed until January 7, 2021.
The FCA's supervision division is 1,552 strong. The policy department employs 175 staff.
A FCA spokesman declined to comment on any potential further delays.
Bank of England policymakers warn of bigger risks for UK economy
(Reuters) - Bank of England Deputy Governor Dave Ramsden and another interest-rate
setter, Gertjan Vlieghe, warned of risks that Britain’s economy could suffer more damage
from the coronavirus crisis than spelt out by the central bank last month. 6
Ramsden told lawmakers on Wednesday 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.
“For me all the risks are really that that number will be greater than 1.5%,” Ramsden said.
He reiterated that the BoE had “headroom to do materially more QE if we need to”,
referring to a possible fresh expansion of the central bank’s bond-buying programme which
already stands at 745 billion pounds ($991.37 billion).
5
Rachel Wolcott, UK FCA has deployed third of staff on COVID-19 work, board minutes reveal, Regulatory
Intelligence (September 04, 2020) at http://go-ri.tr.com/OMDSnN
6
Andy Bruce, William Schomberg, Bank of England policymakers warn of bigger risks for UK economy
(September 2, 2020) https://uk.reuters.com/article/us-britain-boe/bank-of-england-policymakers-warn-of-
bigger-risks-for-uk-economy-idUKKBN25T2KW
© 2020 Thomson Reuters. All rights reserved.Vlieghe said there was “a material risk” that it could take several years for Britain’s
economy to return to full capacity after its coronavirus shock.
The BoE said in August it expected Britain’s economy to recover its pre-COVID-19 size by
the end of next year.
Britain’s economy shrank by more than 20% in the April-June period, worse than any other
big industrialised nation. That was partly because the country locked down later than many
of its European peers.
Vlieghe said some sectors might not recover their pre-pandemic size, leading to a
reorientation of the economy.
“Based on these considerations, there is a material risk in my view that it could take
several years for the economy to return to full capacity and inflation to return sustainably
to target, even with monetary policy at its current settings,” he said in an annual report
to parliament.
Governor Andrew Bailey said inflation might not turn negative as forecast by the BoE last
month, citing evidence that many businesses had not passed a value-added tax cut on to
customers as much as had been expected.
“So that will tend to cause short-run inflation to be higher than we thought it would be,
and it probably won’t now go negative.”
Asked for his views on the recovery in the economy after its lockdown, Bailey said the
bounce back in consumption had been very fast while investment had been weak.
He also said a geographic breakdown of spending data showed that London had seen the
weakest revival of credit card spending since the lockdown.
The capital has been particularly hard hit by the reluctance of many workers and their
employers to get back to their usual places of work. Prime Minister Boris Johnson this
week repeated his calls for people to return to their workplaces.
UK economy might take years to recover from COVID hit - BoE's Vlieghe
(Reuters) - Bank of England interest-rate setter Gertjan Vlieghe said there was a material
risk that it could take several years for Britain’s economy to return to full capacity after its
coronavirus shock. 7
Vlieghe said in an annual report to lawmakers that some sectors might not be able to
return to their pre-pandemic size, leading to a reorientation of the economy.
“Based on these considerations, there is a material risk in my view that it could take
several years for the economy to return to full capacity and inflation to return sustainably
to target, even with monetary policy at its current settings,” he said in the report.
The BoE said in August it expected Britain’s economy to recovery its pre-COVID-19 size
by the end of next year.
Sterling drifts lower as BoE policymakers warn of deeper economic damage
7
William Schomberg, UK economy might take years to recover from COVID hit - BoE's Vlieghe (September 2,
2020) https://uk.reuters.com/article/uk-britain-boe-vlieghe/uk-economy-might-take-years-to-recover-from-
covid-hit-boes-vlieghe-idUKKBN25T25I
© 2020 Thomson Reuters. All rights reserved.(Reuters) - Sterling fell against a rebounding U.S. dollar on Wednesday but steadied
against the euro as Bank of England policymakers warned that Britain’s economy could
suffer more damage than anticipated by the central bank last month. 8
The BoE said in August it expected Britain’s economy to recover to its pre-COVID-19 size
by the end of next year, but Bank of England Deputy Governor Dave Ramsden told
lawmakers economic output would permanently be about 1.5 percentage points lower than
it would have been without the pandemic and another interest-rate setter, Gertjan Vlieghe,
warned of “a material risk” it could take several years for Britain’s economy to return to
full capacity.
BoE governor Andrew Bailey told the lawmakers in Wednesday’s closely watched online
session that inflation might not be as weak as estimated by the BoE last month, citing
evidence that many businesses had not passed on a value-added tax cut to customers.
The speeches from five out of the nine Bank of England monetary policy committee
members were being scrutinised by investors for fresh insight on negative interest rates
and clues to sterling’s direction.
The BoE said last month negative rates are part of their monetary tool box but that it saw
no immediate case to cut interests rates below zero.
Britain’s central bank has taken rates to record lows and ramped up bond purchases this
year to support an economy hit by the coronavirus and the exit from the European Union.
The speeches “are likely to keep the debate on negative policy rates alive in the UK”, said
Adam Cole, chief currency analyst at RBC.
Sterling fell 0.6% against the dollar to $1.3301, having risen to an eight-month high above
$1.34 the day prior. The pound was flat against the euro at 88.97 pence, having risen
earlier in the day to a three-month high of 88.74 pence.
“I wonder if yesterday’s GBP/USD move finally flushed out the last GBP shorts,” said Kit
Juckes, macro strategist at Societe Generale.
Latest CFTC data showed that the leveraged funds held a very small amount of sterling
short positions in the week ending Aug. 25. Fresh data which will include Monday and
Tuesday this week will be released on Friday.
Trade-weighted sterling meanwhile remained range-bound, and well below its pre-Brexit
referendum level. The fact that the real effective exchange rate in sterling is much lower
than that in sterling/dollar indicates the recent sterling strength came solely on external
factors.
“Sterling remains very weak in real effective terms which means it can only go down with
the help of big short positions,” Juckes said.
Recent data painted a mixed picture of the economy.
British house prices hit an all-time high in August, mortgage lender Nationwide said on
Wednesday, adding to signs of a sharp rebound in the housing market after the
coronavirus lockdown.
8
Olga Cotaga, Sterling drifts lower as BoE policymakers warn of deeper economic damage (September 2,
2020) https://uk.reuters.com/article/uk-britain-sterling/sterling-drifts-lower-as-boe-policymakers-warn-of-
deeper-economic-damage-idUKKBN25T1CI
© 2020 Thomson Reuters. All rights reserved.The minister of finance, Rishi Sunak, cut a tax for house purchases in July as he sought to
spark the broader economy which shrank by a record 20.4% in the April-June period.
But industry data on Wednesday showed retailers discounted their goods a bit more
aggressively in August than in July as they sought to lure customers back after the
coronavirus lockdown earlier in the year.
UK mortgage approvals jump as housing market bounces back
(Reuters) - British mortgage lending accelerated in July, a latest sign of a post-lockdown
bounce-back in the housing market, and consumers returned to borrowing, data from the
Bank of England showed on Tuesday. 9
Mortgage approvals jumped to 66,300 from just under 40,000 in June and seven times
higher than their coronavirus pandemic low of barely more than 9,000 in May, the data
showed.
Economists polled by Reuters had expected about 55,000 approvals in July.
“Overall, these figures support other evidence that the economy continued to recover in
July,” Andrew Wishart, an economist with Capital Economics, said.
“But we still think that the realisation of more job losses after the furlough scheme started
to be wound up in August will cause the recovery to slow.”
Finance minister Rishi Sunak cut a duty on house purchase for many buyers in July as part
of his emergency measures to spark the housing market and the broader economy which
shrank by a record 20.4% in the April-June period.
However, the approvals figure remained below its level of nearly 74,000 in February.
Similarly, the amount of mortgage lending in July rose by a net 2.7 billion pounds, up from
2.4 billion in June but still a long way below an average of 4.2 billion pounds in the six
months before the lockdown.
Consumer borrowing picked up, increasing by 1.2 billion pounds in July after four months
of net repayments, slightly above the average borrowing before the lockdown.
But lending on credit cards remained down about 10% from a year earlier.
Separately on Tuesday, a survey confirmed that British factory output recovered some
ground in August when output rose at the fastest pace in more than six years, but the
improvement was from low levels.
'Go big and fast' - BoE's Bailey says bond-buying best in times of crisis
(Reuters) - The Bank of England appears to get the most bang for its bond-buying bucks
if it goes “big and fast” at times of crisis, its Governor Andrew Bailey said, suggesting the
central bank might sell off some of its debt pile in calmer times. 10
9
William Schomberg, Andy Bruce, UK mortgage approvals jump as housing market bounces back (September
1, 2020) https://uk.reuters.com/article/us-health-coronavirus-britain-boe/uk-mortgage-approvals-jump-as-
housing-market-bounces-back-idUKKBN25S4CV
10
David Milliken, Andy Bruce, 'Go big and fast' - BoE's Bailey says bond-buying best in times of crisis (August
28, 2020) https://www.reuters.com/article/uk-britain-boe-bailey/go-big-and-fast-boes-bailey-says-bond-
buying-best-in-times-of-crisis-
idUKKBN25O1Y4#:~:text=LONDON%20(Reuters)%20%2D%20The%20Bank,debt%20pile%20in%20calmer%
20times.
© 2020 Thomson Reuters. All rights reserved.Bailey also said the BoE currently had plenty of ammunition to support the economy
through its coronavirus shock, but there might eventually be limits to how much
government debt is available for central banks to amass if crises keep coming.
Since becoming governor in March, just as the COVID-19 pandemic hammered the world
economy, Bailey has overseen a 300 billion-pound ($399 billion) expansion of the BoE’s
bond-buying programme - taking it to 745 billion pounds - and has cut its key interest
rate to a record low 0.1%.
Central bankers around the world are trying to fine-tune their largely depleted stimulus
tools.
On Thursday, Federal Reserve Chair Jerome Powell announced a shift in the U.S. central
bank’s thinking, putting more weight on boosting employment and less on worries that
inflation might be heading too high.
Speaking to an online conference hosted by the Fed on Friday, Bailey said BoE research
showed bond-buying was most effective at times of crisis in financial markets.
“In the decade ahead, I think we need to take on board the message the COVID crisis has
reiterated, namely that our tools may be state-contingent in their effects,” he said.
“And with that in mind, let’s not ignore the need to manage central bank balance sheets
to enable such state contingency to take effect. There are times when we need to go big
and go fast.”
Bailey has suggested selling bonds back to the market before raising interest rates,
breaking with the sequencing that the BoE previously favoured.
On Friday he said “the appropriate policy mix going forwards over a decade may be more
nuanced than previously thought”.
But he said any decision about selling debt was not imminent.
The BoE published research on Friday that showed it could be possible to sell government
bonds at a time when that would have less impact than raising rates, creating extra
headroom for future action.
Bailey also reiterated in his speech that negative rates were now part of the BoE’s toolbox.
“We are not out of firepower by any means, and to be honest it looks from today’s vantage
point that we were too cautious about our remaining firepower pre-COVID,” Bailey said.
Any next move by the BoE to support the economy is widely expected to be a further
increase in the bond-buying programme.
Britain’s GDP shrank by a record 20.4% in the second quarter, the most severe contraction
of any major economy.
The BoE has said the economy is likely to recover its pre-pandemic size at the end of next
year. Many economists think it will take longer than that.
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