- Bank of England meets as geopolitical developments impact market sentiment
- More pauses priced in, but Wednesday’s Fed meeting could shake expectations
- A statement is scheduled for Thursday at 12:00 GMT. Press conference in 30 minutes
- Calendar also includes final results for manufacturing and services PMIs
Data from September onward tends to be weak.
It’s been a quiet month for ΒοΕ as its members continue to be inactive, especially compared to the Fed and ECB members, as the focus has been elsewhere recently. This followed a difficult September BoE meeting, given that the vote in favor of suspending interest rates was split 5-4. Although the final GDP figures for the second quarter of 2023 showed an unexpected upside in late September, developments since then have been mixed as other data releases have not shown many strong results. There is.
Specifically, the property sector has become a headache for the BoE as various house price indexes continue to show falling prices. Additionally, the number of mortgage approvals is still on the decline, and net lending is almost stagnant, potentially setting us up for the first month-on-month decline since August 2021. Additionally, retail sales continue to show negative annual growth rates, with further signs of consumer confidence. of deterioration.
Importantly, while inflation rose slightly in September, a similar rise is not expected in October. The next inflation report will be released on November 15th, but base effects are expected to slow the annual numbers significantly. Governor Bailey has already telegraphed this expectation, sending a strong signal to the hawks regarding Thursday’s meeting.
Will the talks be easy for Governor Bailey?
So the decision appears to be easier this time around, as the market puts the chance of a 25bps rate move on Thursday at just 2%. That said, the focus will be on voting patterns and overall rhetoric. Regarding the former, a 6-3 vote is expected in favor of another rate cut. So unless the four hawks who supported September’s rate hike move their votes, we’re in for a surprise.
Additionally, markets will be looking to see if the Bank of England decides to soften its hawkish stance, as it appears in its previous statement that “any evidence of further sustained inflationary pressures will require further tightening of monetary policy.” I’m sure he’s paying attention to the comment “I guess.” . To be fair, the entire central bank meeting is bound to be influenced by what the Fed announces the night before (Wednesday). If the Fed chooses a hawkish stance, Bailey and others may be inclined to follow suit without shocking the market. If this is the case, the rate cut currently expected by mid-2024 may be pushed back slightly.
Quarterly forecasts are also included in the menu.
The meeting will also include the World Bank’s quarterly monetary policy report, including its quarterly outlook. The last forecast, made at the August meeting, showed that inflation would fall to 1.7% by the end of 2025, but risks were skewed towards higher numbers. Confirmation of these forecasts, or a weaker outlook within the range under consideration, could dampen prospects for further rate hikes and bring forward hopes for a first rate cut.
Pound has been weak since August
The euro-pound pair has been experiencing an aggressive uptrend since the August lows as euro bulls look to recoup some of the huge losses incurred during 2023. This move is somewhat surprising given what appears to be a change in the ECB’s stance and weak data releases in the euro area recently. Therefore, the pound could benefit from this week’s events. The hawkish stance of the BoE and the tense outcome of the vote could push the euro-pound pair lower, potentially pushing it above the support set in the busy zone of 0.8670-0.8720. Conversely, a dovish meeting would leave the door open for euro bulls to chart a course towards the 0.8794-0.8815 range.