Bank of England MPC - What to expect?
Fiona Cincotta November 5, 2020 2:39 AM
The Bank of England will give it monetary policy announcement tomorrow, as the UK enters lockdown 2.0. Whilst a QE is almost a dead cert, the central bank could also pop in a surprise rate cut.
The Bank of England will give it monetary policy announcement on Thursday 5th November, the same day that the UK’s new month-long lockdown will begin. Whilst a QE is almost a dead cert, the central bank could also pop in a surprise rate cut.
Here’s what to watch for:
Lockdown 2.0 was only announced this weekend, so the central bank may not have had time to adjust all its numbers to reflect the new restrictions. Still, the BoE will in one way or another convey the economic damage that is expected from closing the UK economy for a second time. Q4 GDP will likely be downgraded and the length of time for the UK economy to recovery from the pandemic will likely be pushed out too. Unemployment is also likely to be downwardly revised although the Chancellor has extended the furlough scheme which could cloud the picture.
With UK growth expectations shifting down a gear or two, the BoE could well top up its bond buying programme, with expectations circling around a £100 billion additional injection. This will mean that the central bank can continue to purchase at its current pace until summer 2021.
QE is widely expected so its announcement is unlikely to move the Pound. Perhaps the amount by which the BoE boosts the QE programme could move the market - if it grossly undershoots or overshoots expectations
The BoE is currently reviewing the impact that negative rates could have on banks and their profitability. The review still has another week to run it is highly unlikely that the Bank will reveal its findings just yet. Therefore, anything new from the central bank regarding negative rates is not expected this week.
That said, the minutes of the central bank’s meeting will be scrutinised closely for further clues as to how individual policy makers view negative rates.
Given the lockdown 2.0 announcement and soft service sector PMIs which revealed that growth in the dominant UK service sector is stalling even before another lockdown, the BoE could be looking for a more supportive move than just boosting QE. The BoE could pop in a surprise interest rate cut of 10basis points. This would take rates to 0 and would probably come with a strong hint that negative rates will be next.
This is less likely given that as mentioned above, the review into negative rates still hasn’t been completed. However, never say never.
The Pound has broadly been broadly supported by reported progress in Brexit talks after UK government has agreed to extend Brexit talks. However a very dovish BoE could drag on the Pound boosting EUR/GBP.
EUR/GBP has been trending lower over the past 6 weeks. The pair trades below its descending trendline from mid September, it also trades below its 200 sma on 4 hr chart. A move higher today is still within range.
Immediate resistance at the daily high of 0.9030, prior to trendline resistance at 0.9050. Support can be seen at 0.8945 the day’s low.
From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.