BOE to Hold Rates But Dovish Reports Could Push Hike Beyond 2016

The Bank of England not expected to raises rate on February, quarterly inflation and forecasts will give insight into rest of 2016

The Bank of England (BoE) will be one of the few major central banks making an appearance on February. Governor Mark Carney has talked his way ever since taking the reins of the BoE with little monetary policy action. He did introduce forward guidance to the “Old Lady” but market conditions have shifted so fast forcing him to amend his earlier statement and as one member of parliament Pat McFadden called him a “unreliable boyfriend”. The U.K. economy seemed to be on a fast track in 2014, but towards the end the dependence in exports and low global inflation has left few options to the central bank.

The Bank of England (BoE) will host a Super Thursday with the release of the quarterly inflation report, the monetary policy summary, the official bank rate and the MPC votes on Thursday, February 4 at 7:00 am EST.

Bank of England Super Thursday to Keep Rates Unchanged

The GBP started an upward really at end of January when trading at weekly lows of 1.4150 and it has managed to appreciated by 2.21 percent in a week. The economic data out of the U.K. has been mixed. Construction is slowing down as evidenced by the weaker than expected PMI reading of 55 after the previous month 57.8. The construction PMI was hit by scarcity of building materials but could rebound given the pace of mortgage approvals rose to 71,000. Manufacturing gave the positive note earlier in the week coming in above expectations at 52.9.

The pound has rallied against major currencies: GBP/USD 2.213 percent, GBP/JPY 1.19 percent, GBP/CHF 1.014 percent, GBP/CAD 0.762 percent and the EUR/GBP –0.485.

The BoE will host another Super Thursday with the release of the inflation report, the monetary policy summary, the official bank rate and the MPC votes on the rate decision. The inflation report is likely to show a dovish tone after the economy has posted disappointing numbers. The effect of lower oil prices on inflation has zapped all the forward momentum that at one point had the U.K. central bank in the lead to announce a rate hike. There is no rate change expected from the Old Lady on Thursday. The vote count could be one of the biggest points as it has remained 8–1 in favour of leaving the rate unchanged, but as the global economic conditions weaken, the lone dissenter Ian McCafferty might rejoin the pack although that might prove to send a strong dovish message if he does.

Oil has eased off the deflationary pressure as prices have risen after Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members are open to an agreement that could cut production. It is too early to trust on this outcome as the OPEC is not expected to have a unified front as some members are hurting more than others. The non-OPEC side is currently represented by Russia who depends on the price of crude to balance their budget. Iran and Saudi Arabia are the most likely to nix the deal as the former is just rejoining the list of producers after the lifting of sanctions, and the second is more worried about market share and in the past has been adamant that it will not cut production.

As questions remain if Mr. Carney will stay beyond his 5 year term at the BoE, macro economic conditions could make him only the second Governor to not raise rates during his tenure.

GBP events to watch this week:

Thursday, February 4
3:00am EUR ECB President Draghi Speaks
7:00am GBP BOE Inflation Report
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
7:45am GBP BOE Gov Carney Speaks

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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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