The Bank of England in the Spotlight

Investors keenly await today's monetary policy decision from the US Federal Reserve, but on Thursday, focus will shift to its UK peer, the Bank of England (BoE), for a potentially consequential meeting.

Expectations around the Fed point to a tapering of asset purchases and no rise in interest rates, but for the BoE, the situation appears reverse.

In the last policy meeting, two out of nine BoE policy makers voted to unwind the £895 billion Quantitative Easing program (QE), but this does not seem to be the main focal point this time around – although action cannot be ruled out and the vote count could still be important.

Back in August, the bank's Monetary Policy Committee (MPC) had stated that it intends to begin reducing the stock of purchased assets "when Bank Rate has risen to 0.5% and if appropriate given the economic circumstances".[1]

The interest rate currently stands at 0.1%, to which it was reduced more than a year ago, in the wake of the pandemic and the economic shock it caused. Elevated prices however, have led to calls for an increase, as they are well above the bank's 2% target - despite UK CPI Inflation easing to 3.1% y/y in September.

UK bond yields have risen over the last few months and markets seem to be aggressively expecting a hike, even as early as tomorrow, while there has also been some hawkish commentary from some BoE officials recently. On the other hand, the bank unanimously stood pat on rates in the last meeting and a move now, may constitute a dramatic shift.

The Bank of England hands down its policy decision on Thursday November 4 at 12:00 GMT and remains to be seen whether it is ready to act or will retain rates at 0.1% as currently forecasted in the Economic Calendar.

In any case, the outcome has the potential to spur volatility and two way moves as markets will be digesting the decision and its various components.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 03 Nov 2021 https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy-report/2021/august/monetary-policy-report-august-2021.pdf

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