Bank of England take centre stage

4 August, 2016

Rob Bastin

Sterling markets have been far more stable over recent weeks with rates trading within small ranges as the dust begins to settle post referendum. Data is starting to come back into play and a mixed bag of results has caused the pound to hold relatively steady ahead of today’s big announcement. Yesterday morning Services PMI for the UK confirmed another month of contraction with a result below 50 recording 47.4, meeting analysts expectations exactly. With all 3 sectors of PMI contracting in the month of July, concerns of the Brexit affect on the economy are starting to be realised. Projections from these results are that the UK economy could contract by as much as 0.5% in the next quarter, and the Bank of England are therefore preparing to take aggressive action to boost the economy before it is too late.

At 12pm today the Bank of England will announce their interest rate decision for August, and markets are fully expecting a rate cut of between 0.25 and 0.5 basis points, with 8 of the 9 MPC members expected to vote for this cut. There is also speculation that the Bank may also add additional stimulus to their Quantitative Easing package so the pound could come under considerable pressure depending on the severity of the action announced. What will also be key will be the comments from Mark Carney regarding forward guidance on monetary policy for the rest of year. Will the bank be open for further cuts if necessary? Will they be prepared to go to negative interest rates? If you are still to fix your currency rate, contact us this morning to remove the risk of the potentially huge impact today’s announce could have on the cost of your purchase.

Elsewhere yesterday Euro-zone Retail Sales were flat in the month of July and annual growth came in at just 1.6% against forecasts of 1.7%. The US Dollar had a strong afternoon with ADP employment change beating expectations, which can often be a good indicator of what to expect from Friday’s all important non-farm payroll figure. Services PMI also came in better than expected at 51.4. As cable is currently trading 4% higher than a few weeks ago, this exchange rate could be most susceptible to losses in the next 24 hrs if the big announcements come in as expected.