BoE Preview: Rising Risks, More Easing In November

No change in policy expected but BoE could highlight growing downside risks and point to further easing in November.

Charts (2)

Thursday 17th September 

Growing risks
The Bank of England are not expected to adjust monetary policy this month. With interest rates at historically low levels of 0.1% and £100,00 additional monetary stimulus added in June, this considered sufficient ammunition for now.

Instead this meeting is likely to be more about what is set to come. This list of challenges that the BoE appears to be growing almost by the day as the UK economy attempts to recover from the covid crisis and faces the end of the transition period – with or without a trade deal. 

Whilst leaving without a trade deal will be the most disruptive option, even leaving with a trade deal could see some negative impact on the UK economy.
The Chancellors job retention scheme also concludes next month. Labour market data this week already shows the strains building and that is with 5 million people still on furlough. The unemployment rate is only at 4.2% currently as the furlough scheme masks the reality but that is set to climb to around 7.5% over the coming months. Although this number could increase under a no trade deal exit from the transition period

Inflation is sitting at a 4 year low increasing just +0.2% yoy in August owing to Rishi Sunak’s Eat Out to Help Out Scheme and contracting air fares.

What to expect
Given the how the situation is expected to deteriorate over the coming months, the BoE could acknowledge downside risks are growing. This seems likely given the cautious tone adopted by BoE policymakers lately and could weigh on demand for sterling.
Additionally, stimulus in November is looking increasingly certain, the question is which tools will the BoE be pulling out of the toolbox? We know that BoE Governor Andrew Baily considers QE more useful.
Finally, the discussion surrounding negative rates is set to continue. The BoE has been evaluating the pros and cons of negative rates for some time and still appears to be on the fence. The markets will be watching to see whether negative rates are moving closer to becoming a reality given the rising headwinds that the UK economy is facing. Any hints that negative rates are coming could drag on the Pound and the financial sector.

The pair is trading -0.5% as rare Brexit optimism is giving GBP a boost. The pair still trades comfortably above its 50, 100 and 200 sma on the 4 hour chart and above its ascending trendline, suggesting more upside could be on the cards. A break through 0.9070 could bring into question the current  trend
Immediate support can be seen at 0.9120 (50 sma), prior to 0.9070 (horizontal support). On the upside resistance at 0.91 (today’s high)  

More from GBP

From time to time, GAIN Capital Australia 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.