Markets await momentous BoE decision
The FTSE 100 is trading little changed whilst the pound has experienced some small scale selling this morning ahead of what could be a momentous day. The Bank of England are widely expected to raise their base rate for the first time in a decade at midday, but the impact this will have on the markets remains far from clear.
Dovish or Hawkish hike?
In recent months Governor Carney and his fellow MPC members have been at pains to stress that an increase in rates is forthcoming with several public speeches supporting this stance. Assuming the bank don’t throw a huge surprise and back down on raising rates for the first time since 2007, the big question for the markets is whether we get a dovish or a hawkish hike. Or put another way, whether this is a case of one-and-done or the start of a sustained hiking cycle.
Today will see several announcements alongside the official bank rate which will provide further insight into the chances of additional rate hikes going forward. Perhaps of most importance will be the voting pattern, with consensus calling for a 6-3 split in favour of a rate hike from the MPC. Should there be greater support for raising rates (IE 7-2, 8-1) then this could provide a boost for the pound, whereas a marginal majority (IE 5-4) would threaten to send sterling lower.
Traders to look through rate decision
As well as the voting pattern, the monetary policy statement and quarterly inflation report will provide greater insight into the rate-setters thought process. Previous projections from the bank have forecast inflation to top out towards the end of 2017, as the boost seen in prices due to the sharp depreciation in the pound following last summer’s referendum begins to filter out.
Sterling hit a low back in January and has made fairly steady gains since then and this will start to dampen the effect of higher import prices pushing up inflation going forward. Finally, we have Governor Carney’s press conference half an hour after the rate decision where the Canadian will attempt to communicate the reasoning behind the bank’s decision as well as providing forward guidance as to the future path of rates. Previously the Governor has been criticised for strongly hinting at a hike before backing out at and was labelled and unreliable boyfriend by an MP back in 2014. Carney will no doubt be mindful of this as he looks set to raise rates whilst not imparting unnecessary pressure on what remains a fragile economy by adopting too hawkish a stance. Whether he can pull off this delicate balancing act remains to be seen.