BoE preview: will Carney take hawkish tone?

Thursday’s Bank of England (BoE) meeting looks somewhat like a non-starter given the current market expectations of a 0.4% chance of a rate hike. However, despite the widespread confidence that the BoE will keep rates steady, markets will still keep an eye out for any shift in tone from Governor Mark Carney and co.

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The widespread uncertainty surrounding the direction of Brexit has provided a high degree of volatility for markets, with a likely rejection of Prime Minister Theresa May’s Brexit deal leaving us in a void with no clear exit plan. This is surely likely to be felt by the Monetary Policy Committee (MPC), who are going to find this a far too volatile and unpredictable environment to make any judgement over any potential shift in monetary policy. There is certainly a case to be heard that without Brexit we would have seen the BoE raise rates already, yet with the economy slowing down and markets on the slide, there is little reason to rock the boat right now.

One of the more interesting things that Mark Carney has said this year was that we could see the BoE raise rates in either a no-deal or a good deal scenario, given that a no-deal sterling devaluation would likely drive up inflation. That fear of a weak pound could push Carney to a more hawkish stance to avoid the detrimental impact of a weak pound causing cost push inflation. With average earnings currently standing at 3.3%, traders should keep an eye out for the consumer price index (CPI) inflation reading on Wednesday, with the gap between prices and wages providing a key factor for the BoE governor to consider.

Looking at the FTSE 100, the wider bearish trend remains in play, with prices heading towards the 6670 swing low. With the 6841 level having been broken earlier this month, there is reason to believe that we will see further downside to come. Given the strong possibility of a hawkish tone from Carney, keep an eye out for a break and closed candle below that 6670 swing low to provide a signal of further impending downside.