The Bank of England monetary policy committee met for the September meeting on Tuesday and there are no prerequisites for any important changes in the current configuration.
The English regulator is likely to leave the short-term interest rate at a record low of 0.25%, maintaining the level of the quantitative reduction program at $ 573 billion.
What will traders pay attention to?
Market participants do not hope for changes in the current configuration, however, there is a topic that should be raised during the meeting – inflation.
Following the June referendum in the UK, in which the British decided to leave the European Union, the pound was hit hard and fell against competing currencies such as the US dollar and the euro.
Since then, a weaker pound has greatly increased the cost of living of British citizens. Now inflation is at the level of 2.6%, which is higher than the Central Bank’s target – 2.0%. Should we expect action to solve this problem?
There is no such certainty. Economic growth is threatened by Brexit talks, and the Bank of England looks resilient to rising interest rates to control price increases.
Thus, investors should monitor this and find out how lawmakers intend to control inflation. The head of the Bank of England, Mark Carney, made a promise last month that two more interest rate increases could occur in the next 3 years, which is one more increase than expected.
What to do with the pound?
Think about it this way: changes in interest rates should not be expected earlier than the third quarter of 2018, as Carney stated at a meeting on monetary policy in August.
So, what can you work with? One word: rhetoric. Instead of waiting for real change, you should appreciate the lawmakers’ desire to raise or not raise interest rates.
“Hawk” rhetoric from members of the Bank of England will provide good support for the British pound. Higher rates usually have a positive effect on local currencies and increase their competitiveness.