BOE to Hold as Weaker PMIs Threaten Growth

Construction, manufacturing and service PMIs came below expectations urging BOE to Wait on Rate Hike

Bank of England (BOE) Governor Mark Carney was one of the biggest names attending the annual Jackson Hole central bank symposium. The BOE is expected to hold rates as the U.K. economy has lost some of the momentum that had it at one point as the top choice to be the first major central bank to hike interest rates. The speed of growth slowed down in the Fall of 2014 which was only compounded by a bad quarter in the U.S. which set the global recovery back. Carney said that turmoil out of China would not affect its interest rate plans. Those plans are expect to yield an interest rate hike in the first quarter of 2016.

The economic data of the United Kingdom was mostly negative as the purchasing managers index (PMI)s for manufacturing, construction and services all missed expectations. Out of the three the construction PMI was the only one able to improve the previous month’s reading. Manufacturing and services took a step back that eases off the pressure on the Bank of England to cut rates as the economy is not firing in all cylinders.

The U.K. benchmark interest rate is 0.50 percent and is expected to remain unchanged. The minutes of the monetary policy committee (MPC) meeting will be published immediately after the official bank rate announcement. This is a fairly innovate practice that bring the Old Lady inline with the actual speed of markets and transparency. The last vote was expected to show more support for a rate hike, but there was only 1 vote against keeping the rate on hold. The expectation was that at least two policy members would vote against, with the possibility three would join the rate hike bandwagon. After increased global market volatility it is unlikely the number of dissenters would grow, but investors will be looking at the vote count for hints of a future rate hike.

The Bank of England will make the official bank rate announcement on Thursday, September 10 at 8:30 am EDT.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza