Markets expect an aggressive decision from the BoE next month


The Bank of England introduced an emergency bond-buying scheme which saw over £8bn in purchased bonds coming to an end last Friday. The purpose of the scheme was to settle markets after the government’s release of its ‘mini budget’ that recently saw a dramatic market sell off causing GBP/USD tanking to a record low of 1.03 and UK Gilt yields rising to thirty-year highs.

Last week saw Sterling rally 1.8% against the US dollar on reports of a full U-turn on the fiscal policy plans. During her press conference, the Prime Minister also reported the corporation tax will indeed raise to 25% compared to the current 19%.

Friday was a turning point for the Tory party as the PM sacked Chancellor Kwarteng and appointed Jeremy Hunt to replace him. Can this move restore confidence in the UK government? As recession and fears about economic growth expand rapidly with August GDP unexpectedly contracting -0.3%, services activity dipping 0.1% and the labour market showing a drop of 3.5% between June and August – now at its lowest in nearly fifty years, the economic forecast is set to show a dip in Q3 as a whole.

Markets are looking for an aggressive BoE decision at the next monetary policy meeting in November. US CPI rose 0.4% in September and core CPI rose by 0.6%, the unexpected increase had markets pricing in a 15% chance of 100 basis points rise from the Federal Reserve. After the BoE disappointed in its previous meeting, the markets are hoping for the central bank to follow suit with the Fed and ECB.

Finally, it has been announced that the majority of ‘Trussonomics’ measures are being removed by the new Chancellor Jeremy Hunt. To reassure the markets and reduce government debt, the Treasury department decided on an early announcement today. Let’s now see how the day unfolds within global markets.