The Bank of England (BoE) announced a temporary pause to corporate bond sale operations this week. However, the British pound is set to remain under downside pressure, economists at Commerzbank report.
Stress on the gilt market
“The stress on the gilt markets continues. The yields for British gilts have risen notably again. As of next week, a new programme (temporary repo facility) is supposed to ensure that the stress on the bond markets eases. However, the market seemed disappointed that the BoE will end the bond purchases on Friday as originally planned. The announcement of the new programme did not really calm the markets.”
“In the end, the BoE’s measures do not change the fact that the British government’s tax cut plans shocked the markets. Nervousness is likely to remain high for now and as a result also the downside risks for sterling.”