Bank of England MPC - What to expect?

The Bank of England will give it monetary policy announcement tomorrow, as the UK enters lockdown 2.0. Whilst a QE is almost a dead cert, the central bank could also pop in a surprise rate cut.


The Bank of England will give it monetary policy announcement on Thursday 5th November, the same day that the UK’s new month-long lockdown will begin. Whilst a QE is almost a dead cert, the central bank could also pop in a surprise rate cut.
Here’s what to watch for:

Downgraded forecasts
Lockdown 2.0 was only announced this weekend, so the central bank may not have had time to adjust all its numbers to reflect the new restrictions. Still, the BoE will in one way or another convey the economic damage that is expected from closing the UK economy for a second time.  Q4 GDP will likely be downgraded and the length of time for the UK economy to recovery from the pandemic will likely be pushed out too.  Unemployment is also likely to be downwardly revised although the Chancellor has extended the furlough scheme which could cloud the picture. 

A QE boost
With UK growth expectations shifting down a gear or two, the BoE could well top up its bond buying programme, with expectations circling around a £100 billion additional injection. This will mean that the central bank can continue to purchase at its current pace until summer 2021. 
QE is widely expected so its announcement is unlikely to move the Pound. Perhaps the amount by which the BoE boosts the QE programme could move the market - if it grossly undershoots or overshoots expectations

Negative rate
The BoE is currently reviewing the impact that negative rates could have on banks and their profitability. The review still has another week to run it is highly unlikely that the Bank will reveal its findings just yet. Therefore, anything new from the central bank regarding negative rates is not expected this week.
That said, the minutes of the central bank’s meeting will be scrutinised closely for further clues as to how individual policy makers view negative rates. 

A surprise 10 basis point rate cut ?
Given the lockdown 2.0 announcement and soft service sector PMIs which revealed that growth in the dominant UK service sector is stalling even before another lockdown, the BoE could be looking for a more supportive move than just boosting QE. The BoE could pop in a surprise interest rate cut of 10basis points. This would take rates to 0 and would probably come with a strong hint that negative rates will be next. 
This is less likely given that as mentioned above, the review into negative rates still hasn’t been completed. However, never say never.

GBP/EUR chart
The Pound has broadly been broadly supported by reported progress in Brexit talks after UK government has agreed to extend Brexit talks. However a very dovish BoE could drag on the Pound boosting EUR/GBP.
EUR/GBP has been trending lower over the past 6 weeks. The pair trades below its descending trendline from mid September, it also trades below its 200 sma on 4 hr chart. A move higher today is still within range. 
Immediate resistance at the daily high of 0.9030, prior to trendline resistance at 0.9050. Support can be seen at 0.8945 the day’s low.

Build your confidence risk free

More from GBP

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.