How does the Bank of England meeting affect traders?
MPC meetings are important dates in CFD traders’ calendars as they set the official interest rate in the UK. This UK interest rate is the rate at which the Bank will lend money to commercial banks. However it also influences the rates set by commercial banks and other lenders, causing ripple effects across the UK economy. These include changes in demand for bonds, stocks, currency and other securities, as well as consumer spending and inflation. The committee also decides whether quantitative easing (QE) is required. This is a measure the Bank can use to inject money directly into the economy with the aim of boosting spending. Traders and investors need to pay close attention to MPC meetings and adapt their investment strategies and portfolios in response to any policy decisions.
Why is the interest rate important to traders?
Traders search for any indication of what the UK interest rate and monetary policies will be in the future. If they are able to get their predictions right, they can change their strategy ahead of the announcement and maximise their profits. An interest rate hike, for example, is likely to increase the value of the pound but reduce the value of stocks, bonds, indices (e.g. FTSE 100) and other securities. Lowering interest rates or implementing quantitative easing, on the other hand, is likely to have the opposite effect. Traders look at the composition of the MPC and make predictions about the policies each member will vote for, as well as broader economic factors such as Brexit, which could influence the committee.
