Market report: pound waits on Bank of England rate decision


Sterling recovered this week against most major currencies. Where it goes next will be decided by today’s Bank of England’s (BoE) policy rate decision and broader economic projections.

Interest rates and quantitative easing levels will likely stay the same. However, it will be the policy makers’ tone that could really impact the pound. If they’re more hawkish about a near term rate hike, the pound will benefit, just as the dollar did after the US Federal Reserve’s hawkish comments last week.

This is the BoE’s last significant significant policy guidance until August’s monetary policy report. Today’s meeting could indicate what’s to come then, with many analysts predicting rate hikes next year, earlier than the Fed and Eurozone.

Furthermore, June’s Purchase Managers’ Index (PMI) showed strong readings and reached a record high amid sharply rising workloads. This should ease concerns the UK will face a large unemployment jump when furlough ends in September. This also indicates more inflationary pressure on the economy and could make the BoE nervous. However, they still believe inflation will fall and remain around the 2% target. Anything higher than 2.5% could force them to act earlier to ensure inflation doesn’t spiral out of control.

The only real concern for the UK economy remains the rising Covid infections. Some analysts have suggested the economic recovery may have peaked in recent weeks as consumers and investors become more cautious due to the delta variant’s impact on plans to exit lockdown.

This, along with new talk of a winter lockdown, has led to fears the BoE could take a dovish tone later today.

Key announcements

12:00- GBP – Monetary policy summary

12:00 – GBP – MPC Policy rate decision – to remain unchanged 0.1%

1:30 – USD – Final GDP q/q – unchanged at 6.4%

1:30 – USD – Unemployment claims – Forecast at 382k from previous 412k