It’s been quite a year for the UK and in particular, the Bank of England, with the Brexit vote in June casting considerable doubt over the economic outlook and therefore the central bank’s policy stance.
The initial job of the BoE was to stabilise and calm, something it did very effectively in the weeks that followed. Next was to create new forecasts based on an untold number of uncertainties, something it has struggled to do effectively and faced huge criticism from some as a result of.
The relative resilience of the economy thus far has made the job of the central bank a little easier and because of that, Thursday’s meeting should be relatively straightforward. However, people will be keen to know how recent developments have changed the outlook for the economy and interest rates.
It has been suggested by many that, based on recent developments, the next move from the BoE is more likely to be to raise interest rates rather than cut them. This is because inflation may rise at a faster rate than previously thought due to sterling depreciation, movements in oil prices and better economic performance.
This will be the key thing that traders will be looking for from the Bank of England’s statement and minutes, in the absence of any press conference.
The inflation data on Tuesday was a reminder that while the Brexit effects have been relatively small so far, prices are on the rise and the BoE has warned that it may accept a slight overshoot but only to a point. The recent rise in the pound may have helped this but it still remains more than 15% off its pre-Brexit highs.
Should the BoE signal a lesser willingness to ease policy further or even an intention to raise interest rates if inflation keeps rising, as is expected, we could see the pound leap higher. Given some of the important levels it is currently trading at, this could be a very bullish move for the pound.
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