Bank of England meeting
An in-depth look at the Bank of England’s MPC
announcement – including its role in shaping the UK
economy, and how this affects traders.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.
With the Bank of England due to make their latest rate decision this week, the focus is likely to be more on the tone rather than whether we will see any shift in rates.
The Bank of England (BoE) looks set to keep steady this week, with the Monetary Policy Committee (MPC) presiding over what is likely to be somewhat of a predictable rate decision. However, while there is little doubt that the committee will retain the current level of monetary accommodation, this meeting remains a significant gauge for markets to assess when it will be seeking to raise rates once again.
The first quarter (Q1) saw the BoE disregard much of the weak data due to weather related issues, which saw the construction sector in particular dragging gross domestic product (GDP) growth lower. However, Q2 has been somewhat mixed in terms of data, with a decline in average earnings one of the chief concerns. Inflation is always going to be one of the key drivers of monetary policy, and with UK consumer price index (CPI) declining 0.7% over the past six months, many believe that the BoE are going to be increasingly hesitant to start looking to raise rates. That being said, CPI remains well above the 2% target, and with the influence of rising crude prices yet to be felt, there is reason to believe that the committee will look past the current trajectory of UK CPI.
Elsewhere, we have seen improvements to a number of the most notable data points as the month’s progress. Rising services, manufacturing, and construction purchasing manager index (PMI) surveys in May have helped iron over weakness in manufacturing production. While weaker data earlier in the year forced the MPC from delaying a widely expected rate rise in May, we now turn towards August as the next meeting which markets could see them act again. The question on investor's minds are whether we will see a hawkish tone struck this time around, with the pound likely to be in the spotlight.
GBP/USD has clearly been on the decline of late, with the pair heading into the $1.3204 support zone once more. A break below there would likely spark another downward move for the pair, following a breakdown last week. Keep an eye out for any shift in tone from the BoE, with further downside looking likely unless we break back above $1.3472.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.