BOE Monetary Policy Summary, Rate Votes & Inflation

Jarratt Davis

Special Consultant to the FPA
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Today we are awaiting for UK data. To be particular, BOE Monetary Policy Summary, Meeting Minutes, Bank Rate Votes, and Inflation Report (12:00pm GMT). The initial reaction will come from any surprises in the vote count, with a change back to nine-nil causing downside in the GBP. Conversely if any extra members voted for a hike now then we will see upside in GBP.

If the votes are as expected then the language of the statements, and contents of the inflation report will be the important factor in determining direction in sterling. We will also hear from Gov Carney during the press conference about the inflation report. We expect extreme volatility in the sterling and would not suggest entering into the market too quickly as we could see very wide volatile swings.

Description:
As of August 2015, the BOE release their Monetary Policy Committee Meeting Minutes and their Official Bank Rate decision at the same time. The minutes contain the interest rate and asset purchase vote for each of the nine MPC members during the most recent meeting. The breakdown of votes provides insight into which members are changing their stance and how close the committee is to enacting a change in monetary policy. This vote is reported in an X-X-X format; the first number is MPC members who want to raise rates, second to cut rates, third to keep on hold. The BOE release the MPC Rate Statement only when they have changed the OBR, therefore there will usually be no MPC Rate Statement released.

There will also be a release of BOE Monetary Policy Summary. This report will contain the outcome of BOE vote on interest rates and other policy measures, along with commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes.

On a quarterly basis the BOE also release their Quarterly Inflation Report alongside the aforementioned releases. The QIR includes the BOE's projection for inflation and economic growth over the next 2 years. The BOE Governor also holds a press conference to discuss the report's contents after release. The QIR provides valuable insight into the bank's view of economic conditions and inflation; these are the key factors that will shape the future of monetary policy and influence their interest rate decisions.

Summary:
The BOE still plans to hike rates in 2016, and this gives the currency strength fundamentally, however, just as with the Fed, the BOE cannot hike rates until they see inflation moving higher, towards the 2% target. Until this occurs, rate hikes will continue to be delayed.

The rate decision is accompanied by the quarterly inflation report and press conference, giving us the latest BOE inflation and growth forecasts. Bottom line, until headline inflation starts to make a move towards the target, a BOE rate hike will not get any closer. In line with our thinking on the subject, Bloomberg strategist Richard Jones writes, "Until U.K.'s headline inflation starts to show a meaningful pickup, any Bank of England forecasts for faster price growth this Thursday won't be enough to push market pricing for a rate liftoff closer to the present."

The bank rate votes are expected to come in unchanged at 1-0-8, however there is some speculation that Kristin Forbes or Martin Weale could opt to vote for a hike.

No matter what happens, the one certainty is this will be a very volatile day for Sterling and risk management should be priority!

I also covered this event in my weekly risk events video. You can watch it here.

P.S - If you want to learn more about how I trade, check out the link below

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