* The BoE slows down bond purchases but increases growth forecasts
* The pound sterling falls then bounces back
* ‘Super Thursday’ elections see Scots heading to the polls
* Chart: world exchange rates in 2020 tmsnrt.rs/2egbfVh
* Chart: Trade-weighted pound sterling since Brexit vote tmsnrt.rs/2hwV9Hv (updates throughout BoE statement, added new quotes, latest prices)
LONDON, May 6 (Reuters) – The pound sterling rose on Thursday after the Bank of England signaled a slight slowdown in its bond buying stimulus and predicted a much stronger rebound in the UK economy thanks to the loosening of COVID-19 restrictions.
The pound initially fell after the BoE said it had kept its interest rate on hold as well as the year-end target size of its bond buying program.
Minutes later however, the pound rallied to hit the day’s high of $ 1.3942, up 0.2% on the day, after the BoE announced a slowdown in the pace of such purchases. and announced that it forecast economic growth of 7.25% in 2021, up from 5%. forecast in February.
Against the euro, too, the pound recovered most of its losses and was last at 86.47 pence, down just 0.2%.
The relatively successful rollout of the COVID-19 vaccine in Britain has allowed the economy to reopen faster than many anticipated and, with consumers and businesses having stored money saved during the pandemic, economists increase their growth forecasts.
“The hard-hitting cocktail of a reopening economy and excess consumer savings means the UK economy should be ready for a party for the rest of the year,” Ambrose Crofton, Global Market Strategist at JP Morgan Asset Management.
“Any prospect of negative interest rates seems to have sailed so far,” he added.
Slowing down the pace of bond purchases is a moderate step towards when the BoE begins to reverse its emergency stimulus. The BOE has said it will slow its purchases to 3.4 billion pounds between May and August, from the current weekly rate of 4.4 billion pounds.
But a reversal is still seen as something distant – most economists polled by Reuters last month only envisioned a first rate hike until 2023.
“We had the initial headline that the overall buying target was unchanged and this was greeted positively by the markets as there had been speculation about a possible reduction in purchasing volumes,” said Richard McGuire. , head of interest rate strategy at Rabobank.
“And then it appears the market responded to the headlines that the BoE is slowing the pace of bond purchases. As the dust settles, there are also optimistic macroeconomic forecasts, but overall this is a modest response.
UK two-year government bond yields first fell to a two-week low, then edged down to 1.1 basis points higher that day.
Thursday is a busy day for the UK with a series of local and regional elections. Dubbed ‘Super Thursday’, the vote is underway in the Scottish and Welsh deconcentrated parliaments, along with a handful of English local council seats and a closely watched parliamentary by-election in the north-east of England.
Most interesting for sterling traders is the Scottish election, where the pro-independence Scottish National Party has promised to call another referendum on the break with the UK if it wins a majority of seats.
The polls put the SNP well ahead of its rivals, but it may not reach an absolute majority. (Additional reporting by Joice Alves and Dhara Ranasinghe edited by Sujata Rao)