BOE Rate Decision, Monetary Policy Summary, and Meeting Minutes data will be released today at 12:00pm GMT. The initial reaction will come from any surprises in the vote count if, while unlikely, Ian McCafferty reverses his vote for a rate hike changing the tally back to nine-nil. This will be the first thing to watch for as some analysts have speculated that McCafferty may choose to change his stance at this meeting which would see the GBP pressured.
Conversely if any extra members voted for a hike now then we will see upside in GBP. However, at this point, we don’t see any reason for other members to flip, or for the central bank to have a hawkish tone. If the votes are as expected then the language of the statement and minutes will be the important factor in determining direction in sterling.
As of August 2015, the BOE release their Monetary Policy Committee Meeting Minutes and their Official Bank Rate decision at the same time. The minutes contain the interest rate and asset purchase vote for each of the nine MPC members during the most recent meeting. The breakdown of votes provides insight into which members are changing their stance and how close the committee is to enacting a change in monetary policy. This vote is reported in an X-X-X format; the first number is MPC members who want to raise rates, second to cut rates, third to keep on hold. The BOE release the MPC Rate Statement only when they have changed the OBR, therefore there will usually be no MPC Rate Statement released.
The BOE now also release a Monetary Policy Summary which contains the outcome of their vote on interest rates and other policy measures, along with commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes.
On a quarterly basis the BOE also release their Quarterly Inflation Report alongside the aforementioned releases. The QIR includes the BOE’s projection for inflation and economic growth over the next 2 years. The BOE Governor also holds a press conference to discuss the report’s contents after release. The QIR provides valuable insight into the bank’s view of economic conditions and inflation; these are the key factors that will shape the future of monetary policy and influence their interest rate decisions.
The BOE still plans to hike rates in late 2016 or early 2017, and this gives the currency strength fundamentally, however, the BOE cannot hike rates until they see inflation moving higher, towards the 2% target. Until this occurs, rate hikes will continue to be delayed. Global uncertainty stemming from China, coupled with the continued fall in commodity prices to begin 2016 hasn’t helped matters any. Given the UK’s low inflation and Core CPI sitting only slightly above 1%, combined with the dovish MPC and the market pushing back expectations of a rate increase, we see GBP as a weak bullish currency rather than a wholly bullish one.
The sterling has seen weakness in recent months as expectations of a rate hike get pushed out further into the future due to low inflation. The market will be looking for any surprises in minutes, such as potentially a change in votes back to 9-0, or any other dovish commentary which may send the pound lower.
P.S. This release was also covered in the weekly risk events video. You can watch it here.