Bank of England (BoE) Governor Andrew Bailey said on Thursday that risks to Britain’s economy were “very much on the downside” and that the central bank was ready to use its policy firepower to limit the impact of a second wave of COVID cases.

“We must use policy actively and aggressively, and we have done that,” Bailey told a European Union banking conference.

Britain’s central bank cut interest rates to a record-low 0.1% at the start of the crisis and has announced 300 billion pounds of extra government bond purchases. It is also considering whether it could or should cut rates below zero.

“We are by no means out of firepower in terms of our policy tools, and we will use that firepower as appropriate, properly and strongly in response to second and third waves, where we think it is necessary,” Bailey said.

Sterling rose to a day’s high against the dollar and euro after these remarks.

Bailey had earlier told the online webinar hosted by the European Commission that British gross domestic product in the third quarter was probably 7-10% below its pre-pandemic levels, echoing comments he made two weeks ago.

While that represented a recovery from a fall of more than 20% earlier in the year, the bounce back had been very uneven as some sectors continued to face restrictions and represented a very big recession.

“There is an unprecedented level of uncertainty at the moment. And the risks, I’m afraid - certainly as we see them - are very much on the downside,” Bailey said, citing the rise of COVID-19 cases in Britain.

Asked about the prospect of a trade deal between Britain and the European Union before a post-Brexit transition ends on December 31, Bailey said it was vital that economies remained open.

“Nobody benefits from protectionism in my view,” he said.

Britain’s post-Brexit transition would not be easy and “would have been easier had we not have to deal with COVID”, he added.

In a newspaper interview published on Thursday, he said he believed Britain and the EU should be able to reach a trade deal, and that he did not expect the new wave of coronavirus cases to be as damaging as the first.

Financial stability is unlikely to be endangered if Britain and the European Union do not reach a post-Brexit trade deal before the end of the year, though some customers may face disruption, the Bank of England said.

“Most risks to UK financial stability that could arise from disruption to the provision of cross-border financial services at the end of the transition period have been mitigated,” the BoE’s Financial Policy Committee said in a quarterly update.

“Some market volatility and disruption to financial services, particularly to EU-based clients, could arise,” it added

Meanwhile, British midcaps rose to their highest levels in nearly two months on Thursday following the Bank of England Governor’s upbeat views on Brexit and as a slew of corporate results showed signs of improvement.

Andrew Bailey said he believed Britain and the European Union should be able to reach a trade deal, and that he did not expect the new wave of COVID-19 cases to be as damaging as the first.

Capping the market’s gains, however, Prime Minister Boris Johnson’s government said it is considering additional local COVID-19 restrictions for parts of northern England as the second wave of the novel coronavirus accelerates.

The mid-cap index, considered a barometer for Brexit sentiment, gained 0.5%. Electrocomponent was one of the biggest boosts after it said it expects the virus’ impact to ease in the second half of the year. The blue-chip index gained 0.2%.

“With hopes of some support from the US and with the pound going up, it has given the market an idea of some positive developments on the Brexit front which also helped mid-caps gain as they are better geared towards Brexit news,” said Chris Bailey, a strategist at Raymond James.

In an earnings-heavy day, Ladbrokes and bwin owner GVC Holdings surged 7% to a two-year high as it raised its outlook for annual core earnings after posting a 12% rise in its revenue for the third quarter.

Fund supermarket Hargreaves Lansdown dropped 3%after it said it took in 800 million pounds of net new business in the quarter to Sept. 30, but also said it saw weakening investor sentiment arising from COVID-19 and Brexit uncertainties.

Sterling inched up towards $1.30 on Thursday as prospects for a Brexit deal appeared to improve, with Britain giving it a 66% chance of success and a media report suggesting officials might be more optimistic than they were letting on in public.

Reuters