While the Fed’s expected rate cut later today is the main focus for markets this week, the Bank of England’s policy decision on Thursday is also drawing attention given the sharp fall in sterling and the rising fears around a no-deal Brexit.
The Bank of England will announce its policy decision tomorrow at 1100GMT followed by a press conference with Governor Mark Carney at 1130GMT. The Bank's quarterly inflation report will also be published.
No change to policy is unanimously expected but the markets are keen to see how the MPC balance up an economy with a strong labour market and benign inflation, similar to the US, with one that has rates which are still relatively accommodative, like the Eurozone.
Alongside this of course is the burning issue of Brexit and the MPC's previous forecasts which have been based on a smooth exit. Back in May, markets were pricing in a quarter point rise in rates over two years and inflation forecasts at 2.2% after three years.
Since then, we've seen the pound sink dramatically and with it the implied path of interest rates has fallen too. This means the MPC will need to adopt a more pessimistic view of the economic outlook as otherwise its new forecasts will show an inflation overshoot by a larger margin. It is also important to remember that the recent depreciation of sterling will add to inflationary pressures, whilst at the same time adding more stimulus to the economy.
With the weakening in growth momentum and the significant risks to the outlook, an easing in policy communication further ahead is easy to envisage. As MPC hawk Michael Saunders said recently, ‘the economy right now is clearly not overheating — the underlying pace of growth is weak and below trend’.
That said, there is much obvious uncertainty ahead and PM Johnson’s campaign promises of tax cuts and more public spending would also add to hesitancy at the Bank about relaxing monetary policy.
Here are the numbers to know ahead of the meeting:
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