Bank of England rate preview: markets expecting QE expansion
While the Bank of England looks likely to expand their asset purchase scheme, will they allude to potential alternative measures to support the economy?
When and where?
The Bank of England's (BoE's) monetary policy committee (MPC) will conclude their latest virtual monetary policy meeting at 12pm, on Thursday 18 June 2020.
Will we see any change to monetary policy?
The MPC is widely expected to introduce an additional £100 billion worth of quantitative easing (QE) on Thursday, with the bank focusing more on the QE side of things rather than interest rates.
With committee voting unanimously to keep rates steady at 0.10%, there is little chance we will see any shift this time either.
However, while the past meeting saw a 7-2 vote in favour of keeping asset purchases at £645 billion in May, markets are now widely expecting to see a rise in the asset purchase facility. Those two members that voted for a £100 billion rise to the asset purchase facility could have their way this time around, with expectations pointing towards that figure being a key threshold to base expectations around.
Anything below that level is likely to underwhelm markets, while a larger figure could surprise markets (£150 billion has been touted by some). Given that the current rate would see the £200 billion introduced in March exhausted by July, it looks almost certain we will see some form of expansion to keep things ticking along.
There is a chance we could see a US-style rolling monthly purchase target, yet it is not expected on this occasion.
What else should we look out for?
While the size of the QE increase could be notable, many will be on the lookout to see if the BoE are considering any other solutions to the current crisis. Negative rates are always a hot topic, and governor Mark Carney's exit could open the bank up to this possibility.
Thus, keep an eye out for any hint as to whether negative rates are a consideration when the minutes are released (also on Thursday). Arguably there is little that such a policy would achieve that the current rock bottom rates are not already encouraging.
Nevertheless, from a market perspective it could be quite a boon given that such a policy has been widely avoided over the years.
Where now for the pound?
The pound has managed to break through the £1.2653 resistance level today, with a move out of risk assets seeing the dollar lose favour.
Questions still remain as to whether we are seeing a retracement of the wider decline from £1.2813 though.
Therefore, we would need to see that £1.2813 level overtaken to continue the wider uptrend that seemed to end with the exit through trendline and £1.2618 support.
A break back below the 80 threshold for the stochastic could provide a signal of impending downside. Until then, the ability to break through 61.8% and 76.4% Fibonacci should tell us a lot about the possibility of pushing on upwards or reversing lower.
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Be ready to act on Bank of England announcements
Take a closer look at the potential effects of the BoE’s interest rate announcement, ahead of the next Monetary Policy Committee (MPC) meeting on 24 June 2021.
- What was decided at the last BoE meeting?
- How does the MPC influence inflation?
- How might the pound be affected by the next meeting?
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