BoE preview: Too soon for a hawkish bias despite soaring inflation
Fiona Cincotta September 21, 2021 2:50 AM
The BoE will make its monetary policy announcement on Thursday. Even though inflation has surged to over 3%, GDP growth was softer than expected. With the furlough scheme winding up at the end of the month the BoE is likely to be in wait and see mode.
When is the Bank of England interest rate announcement?
The BoE is due to make the latest monetary policy announcement on Thursday 23rd August at 12:00.
What to expect from the BoE rate announcement?
No changes in monetary policy are expected. The BoE is not expected to hike interest rates from historic lows of 0.1%. Bond purchases are expected to stay unchanged.
The BoE September meeting comes amid encouraging signs from the labour market and as inflation surges higher. CPI in August ramped up to 3.2%, the highest level in almost a decade and well up from the 2% recorded in July. The central bank sees inflation reaching 4% by the end of the year.
Meanwhile the labour market has also showed signs of resilience with payrolls reaching pre-pandemic levels. With over 1 million vacancies it would appear that the labour market can cope with the winding down of the furlough scheme. However, there is a good chance that the central bank will want to see how this unfolds before moving to tighten policy
However, supply chain issues stemming from covid and Brexit threaten to place more of a damper on the economic recovery. Retail sales unexpectedly fell owing to supply chain disruptions and rising prices. GDP growth in July was also slower than forecast which could prompt caution at the BoE.
What the BoE say?
BoE Governor Andrew Bailey revealed that the split in the MPC is roughly 50/50 between those who are upbeat regarding the UK economic outlook and those who are not. However, this meeting we will gain insight into what the two newest members of the MPC think with the new chief economist Huw Phil, and Catherine Mann replacing Gertjan Vlieghe.
The Bank of England are not expected to move on policy and are likely to stick to the August message. Eyes will be on the number of additional dissenters, if any, who join Michael Saunders voting in favour of a winding down of bond purchases.
Expectations are that the BoE will start hiking interest rates as from mid next year. This is priced in. It would take a hawkish surprise by the BoE to boost GBP/USD higher back above key resistance levels.
Where next for GBP/USD?
GBP/USD has been forming a series of lower highs since early June. Acceptance below the 200 & 50 sma on the daily chart has prompted further selling. A break below 1.3730 horizontal support and 1.37 round number has added to the downside momentum.
For now, support has been found at 1.3650 the daily low, although the bearish RSI suggests that there could be more downside to come. The near-term bias remains in favour of the sellers with 1.36 the August low in focus ahead of July lows at 1.3570.
On the upside, it would take a move over 1.3730 to negate the near-term downtrend and a move above 1.3840 the 200 sma for the buyers to gain traction towards.
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