Heads up, pound traders! The Bank of England is scheduled to make their policy decision this week, and some are expecting a cut to be announced. Will they or won’t they?
What happened last time?
In their policy statement last December 2019, BOE policymakers decided to keep rates and asset purchases unchanged. However, there were two dissenters – Michael Saunders and Jonathan Haskel – who voted cut rates by 0.25%.
Now Saunders and Haskel had already called for a rate cut back in November, citing slowing employment growth and dimmer inflation prospects. This was highlighted in the minutes of the December meeting, which said:
“There continue to be some signs that the labour market is loosening, although it remains tight. Employment growth has slowed and vacancies have fallen… The headline [inflation] rate is still expected to fall to around 1.25% by the spring, owing to the temporary effects of falls in regulated energy and water prices.”
MPC members concluded that they would continue to monitor how businesses and households react to Brexit-related uncertainties, as well as prospects for a recovery in global growth.
What’s expected this time?
The market consensus is that the BOE is still very likely to keep interest rates and asset purchases unchanged during their upcoming statement but that one or two more MPC members might call for a cut.
In particular, policymakers Silvana Tenreyro and Gertjan Vlieghe might vote to lower rates by 0.25% as they previously mentioned that they would back further stimulus if the U.K. economy continues to struggle.
The latest batch of reports have been mixed, with jobs figures surprising to the upside while inflation and spending lagged. Heck, headline CPI slipped from 1.5% to 1.3% – well below the BOE’s 2% target!
BOE head honcho Carney seems to be staying neutral, though, citing that there could be a case for cutting rates on a “risk management” basis. Keep in mind that Carney is due to step down and make way for the new BOE chief Andrew Bailey on March 16, so he might not be inclined to rock the boat anymore.
Besides, leading economic indicators like the Markit PMI readings for January signaled that both manufacturing and services sectors are pulling up from the post-election slump.
Also, don’t forget that the official Brexit date is coming up by the end of this month, so policymakers might opt to hold their fire for now.
How might GBP pairs react?
Since the doves still seem to be outnumbered in the BOE and the odds are tilted towards keeping rates on hold, the pound might be able to keep its losses in check or even bounce during the event.
During the December announcement, sterling popped higher initially but soon erased its gains and more when the minutes highlighted downside risks and seemed to keep the door open for a cut.
Of course the currency’s reaction might also hinge on updated growth and inflation forecasts based on the BOE’s Monetary Policy Report, as well as policymakers’ remarks during the press conference.
If you’re still trying to pick which GBP pair to trade, this trend strength analysis tool showing which pairs are in bullish or bearish territory might help:
In any case, make sure you practice proper risk management if you’re planning on trading this top-tier event!