BoE preview: will weak PMI data impact Super Thursday forecasts?
Super Thursday at the Bank of England brings about more volatility for the pound, with economic forecasts and an interest rate decision set to dominate market sentiment.
The Bank of England (BoE) is back in the frame this Thursday, with Mark Carney and co maintaining the focus on the pound in the wake of a trio of disappointing purchasing managers index (PMI) surveys in the past week. The UK economy certainly seems to be taking a nosedive with less than two months until the Brexit deadline which could see the country leave the EU without any deal. There is no doubt that under the current circumstances, the monetary policy committee (MPC) will be hugely cautious with their decision-making on Thursday. A rate hike is not on the cards, with the committee likely to hold off until they have greater certainty over the direction of the country.
As mentioned, the three January PMI surveys have done little to impart confidence in the economy. Manufacturing saw companies stockpile at the fastest rate on record, as companies finally reacted to the growing possibility of a no-deal Brexit. The construction sector saw employment growth fall to the lowest level since July 2016. Meanwhile, services saw output growth fall to a two-and-a-half-year low. Taking these three PMI surveys into account, Markit forecast that the fourth quarter (Q4) gross domestic product (GDP) figure for the UK will come in at a mere 0.1%.
On the inflation side of things, the last consumer price index (CPI) reading of 2.1% represents a significantly lower rate than has been in play just a few months ago. With CPI having dropped 0.6% in the past four months (2.7% in September), the role of inflation as a core driver of a more hawkish BoE stance is going to be lessened.
However, the question we need to find out is whether this less hawkish outlook is temporary or a new position that is going to stay in place. Brexit fears are clearly a huge issue and the BoE will likely spell out whether their decision to hold if is simply a temporary issue before Brexit uncertainty is resolved or not.
However, this Thursday is more important than your typical BoE meeting, with the so-called ‘Super Thursday’ moniker highlighting the fact that we also see the release of the inflation report and economic forecasts. The projections of future growth, inflation, and unemployment will provide a key driver of volatility for the day, with ONS providing the numbers.
Looking at the pound, we can see the effect of the three weak PMI surveys over the past week. This could well be a retracement rather than a full reversal back into the $1.2435 lows, yet it is likely that there is further downside to come. Look out for the BoE’s post-Brexit outlook for monetary policy, plus any revisions to the economic outlook for a potential driver of price action for the pound.
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. See full non-independent research disclaimer and quarterly summary.
Bank of England meeting
An in-depth look at the effects of the BoE’s interest rate announcement ahead of the next MPC meeting on 1 August 2019.
- What was decided at the last BoE meeting?
- How does the MPC influence inflation?
- How might the pound be affected by the next meeting?
Live prices on most popular markets