Will Brexit overshadow this month’s meeting?
With only eight days to go until the UK exits the European Union and no deal in place, you would be forgiven for thinking that the Bank of England meeting on Thursday is going to be a non-event, one that investors everywhere are going to broadly ignore, but I’m not sure that’s the right way to look at it.
I’m not suggesting that there may be a surprising rate hike (or cut – other central banks have taken a dovish turn recently) and unlike their US and European counterparts, they don’t release new economic forecasts until May, so no surprises there – although that meeting could be very interesting!
But that doesn’t mean the meeting is a waste of time or should be ignored. The economy is still doing ok, unemployment fell to its lowest level since February 1975 in January, wages are growing at 3.4%, inflation is near-target at 1.9% and a smooth Brexit remains the base case scenario. The bank may not raise rates this week, but one may not be far off.
What can we look forward to?
The flip side of that is that the BoE is unlikely to offer any strong forward guidance this month, especially in such an uncertain global economic environment. That doesn’t mean we won’t see a rate hike this year – 25% priced in this year – but just that May is far more likely to be the time that we are given guidance on it.
BoE Interest Rate Probabilities
Source – Thomson Reuters Eikon
The release of the minutes alongside the announcement makes Thursday’s announcement more interesting, with a press conference reserved for the quarters that new projections are released.
Can we expect much movement in GBP?
In terms of what this could mean for the pound, I can’t help but feel that traders are distracted with events in Westminster and Brussels right now and it may take something completely unexpected to draw attention away and significantly impact UK assets.
The fact of the matter is that the BoE this week will play second fiddle to events in Brussels, where the European Council will meet and a possible Brexit extension will be on the agenda. Comments coming from this meeting will likely have a far greater impact on the direction of the pound than whatever the BoE says.
I’m sure Governor Mark Carney and his colleagues won’t be too disappointed at not being in the limelight this week.
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