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Adam Samson
Brexit, Brexit, Brexit
The FT George Hammond Brexit numbers and mentions in the August Inflation Report have soared since the previous May.
"Brexit" was mentioned 133 times, compared with 87 in May.
The "Uncompromising Brexit" garnered 87 mentions, compared with 5 in May.
Tommy Stubbington
"Inconsistencies" in the Bank's forecasts
The Bank continues to badume a smooth Brexit in its forecasts. However, these forecasts take into account market prices that are based on very different badumptions (namely that Brexit without a transaction is a significant and growing opportunity). The inflation report acknowledges this, stating that "given the MBM conditioning badumptions, there are some inconsistencies in the forecasts". So take the current projections with a pinch of salt because they are based on a trajectory for the markets that will almost certainly not succeed.
Philip Georgiadis
The pound sterling retreats above $ 1.21
The pound largely overturned the fully-anticipated decision to maintain the Bank's reduced rates and growth forecasts. It now stands just above US $ 1.21 after holding a minor rally in the BoE publication published at noon.
Tommy Stubbington
"What does a central bank do when the currency is in free fall?"
This is the question asked by Charles Hepworth, Director of Investments at GAM. He keeps on:
The BoE's decision today to stop doing anything about rates is a testament to their inability to stabilize the policy-inspired mess we see ourselves. Raising rates in the face of a declining home environment is not an option, and rate cuts at this point would lead to further falls in the currency. There is another political meeting before the Brexit Halloween deadline, but there is still no expectation of change. Boris Johnson and his team could strive to promote a new sense of optimism about Brexit, but he and his government team are the only ones able to boost the pound sterling, and this result looks very good. hard to see for the moment.
Philip Georgiadis
BoE reduces growth forecasts
Brexit uncertainty and global trade tensions are weighing on British growth, with the Bank of England's latest forecast pointing to a one in three chance that the economy will shrink by the start of next year. Delphine Strauss from the FT writes.
In its August inflation report, the central bank had lowered its central growth forecasts this year and the following year, predicting that production would only increase by 1.3% in 2019 and 2020, even though it lowered interest rates as expected by the markets.
He said the probability of negative growth in the first quarter of 2020 was 33% if interest rates remained unchanged – the highest probability of contraction observed since the immediate aftermath of the Brexit referendum in August 2016.
Even taking into account the volatility caused by Brexit stocks and factory closures, "underlying growth seems to have slowed since 2018 at a rate below potential," said the monetary policy committee. noting that global growth was weaker and lingering uncertainty around Brexit. processes weighed on business spending.
Philip Georgiadis
BoE holds rates
The Bank of England kept its key rate at 0.75%, as expected. The Monetary Policy Committee took its decision unanimously.
Tommy Stubbington
Brexit is not everything
There are other reasons why investors are banking on an accommodating shift in the bank. First, economic data has weakened – this morning's manufacturing PMI for July recorded the largest drop in output in seven years. Then there is a bigger overall change in rates. The US Fed cut yesterday for the first time in a decade, as the ECB prepares for a big easing plan in September. The BOE seems more and more out of sync and the markets are clearly thinking that it is not viable. British 10-year government bond yields fell below the 0.6% mark this morning, their lowest rate in history, with the exception of a slight down in August 2016.
Tommy Stubbington
Consolidation of the bank by Brexit
In the run-up to today's meeting, the Bank of England has prompted markets to expect "gradual" increases in interest rates. Investors are not of this opinion, predicting a reduction in rates by the end of the year, more advantageous than ever. This is largely because the Bank's forecasts are based on a good Brexit, while the markets have spent the last few weeks betting on the lack of a deal – to get rid of the pound sterling on the badumption that the resulting chaos will result in lower rates as the economy tarnishes.
Nobody is expecting a rate cut today, but BOE observers are craving the clarity of Mark Carney's Brexit. This could mean establishing two distinct scenarios: one for a good Brexit (which would likely continue to include a rising bias) and another for a non-agreement. To move the markets, he should probably specify what no agreement would mean for rates, and how likely he thinks there would be no deal.
Philip Georgiadis
More pain to come?
The situation could be much worse for the pound and the bank.
Despite the recent plunge in the pound sterling, many investors and traders have not fully considered exit without a transaction.
"It's now the baseline scenario for me," said Neil Jones, head of currency sales for financial institutions at Mizuho Bank. Jones said in such circumstances, the pound is expected to trade at sustained levels around the $ 1.10 to $ 1.15 levels that she briefly touched on during the 2016 "crash".
Analysts at the US bank JPMorgan see a 25% chance of no transaction.
Our badysts expect the cable to reach $ 1.15 in a case of non-agreement. They see this as a conservative scenario and point out that the cable could just as well be 10% lower.
Philip Georgiadis
Pound breaks $ 1.21 in front of the BoE
The pound fell below $ 1.21 for the first time since January 2017, following the Bank of England's decision on interest rates later on Thursday.
The pound fell 0.3% against the dollar to $ 1.2093, penalized by the strength of the greenback in the aftermath of the Federal Reserve meeting, and continued investor concern that Boris Johnson's new government could lead Britain into a Brexit without a contract in the fall.
The pound was down 0.2% against the euro at 1.0957 €.
The sterling lost 4.2% against the dollar in July, the investor worrying about the likelihood of a disruptive exit from the European Union.
The sharp fall in the currency should push consumer prices higher, which will be a new headache for BoE policymakers, who should keep interest rates later in the day.
The Monetary Policy Committee is already working to manage the growing risk of a Brexit without a transaction. Its forecasts currently badume a smooth exit from the EU.
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