Good morning
Bank of England expected to signal August actions will do for the time being
After clearing up his future at the Bank of England earlier this week, Governor Carney will face further public scrutiny today at the first opportunity for the Bank to use their quarterly summary of economic conditions and forecasts to justify their decision to cut rates and ramp up asset purchases back in August.
At present, the most-watched UK asset is by far and away the pound. After taking its place as the single worst performing global currency last month (despite UK gilts also being poorest performing developed world bond market last month), it’ll be difficult for the Bank to gloss over the fact that the UK economy is not only facing Brexit-related uncertainty but also the weakest pound in over a century and a half. The weaker currency and the tendency for this to mean higher prices should be reflected in the Bank’s inflation forecast today, but Carney will double down on the Bank’s willingness to look through above target inflation if it means economic growth will be healthier in the long-term.
In August, the Quarterly Inflation Report forecast 2017 economic growth at 0.8%. Given the surprisingly resilient data seen since the vote, these numbers will be revised upward, but the Bank’s preference for caution and moderation mean we’re not in for a remarkably bullish forecast from Carney and Co today.
What does this all mean for the pound? Markets will have a raft of information to digest today but they’re already making it clear what they expect – the pound rose above a closely-followed technical level yesterday – the 20 day moving average – meaning the pound is seeing support and the near-term negative trend we’ve seen could be over. Markets see the Bank to remaining downbeat, but signalling that further monetary accommodation could be unnecessary as the stimulus provided in August is sufficient to see the economy through.
High Court decision due at 10:00 GMT
Today’s not only a big day for central banks, but also in the legal world, as the High Court are due to rule on whether the triggering of Article 50 should subject to parliamentary approval. HM Government’s argument is that Theresa May can use ‘royal prerogative’ to signal the UK’s formal departure from the European Union, powers reserved for monarchs originally written into British law centuries ago. A judgement in favour of parliamentary approval would be seen as a blow to May and her young cabinet and while it might not necessarily counter the public vote in June, it would make it much more difficult for Article 50 to be triggered without making further promises to the public, such as Single Market membership, ahead of our departure.
Fed eyeing December for next rate rise
To the surprise of no one, the Fed kept rates unchanged yesterday as the proximity of the Presidential election proved too much of a risk for the FOMC to feel comfortable pulling the trigger. Curiously, the Fed made no mention of politics whatsoever in the accompanying statement, instead focusing on the increasing inflationary pressures present in the economy, leaving December as the most likely time at which they’ll raise borrowing rates again.
Have a great day.