Prospects of More BoE Tightening are Detrimental to UK100

  • UK100

UK100 Analysis

This week's CPI report offered some reasons for optimism, as Headline inflation decelerated further to 6.8% y/y in July and core stabilized at 6.9%, just off its multi-decade highs (7.1%). However, inflation remains very high and the Bank of England does not expected it to fall below the 2% target for another two years. What's more, regular pay grew by 7.8% y/y in April-June, in the biggest increase since the series started. This feeds a wage-price spiral and makes controlling inflation much harder.

The central bank raised rates again earlier this month, which are now in "restrictive" territory [1], having delivered 515 basis points worth of hikes in fourteen straight meetings, since the December 2021 lift-off. In their typical style, policymakers remained non-committal as to their next steps, creating uncertainty around the policy outlook.

Officials have to contemplate the massive amount of cumulative tightening and its lagging nature, which weighs on economic activity and raises borrowing costs, stressing households and businesses. Despite these considerations, this week's inflation and employment report keep the pressure for more rate hikes and prolonged restrictive stance.

UK100 reacted negatively to these data points and their monetary policy implications, shedding more than 3.5% on the week. It is in risk of new 2023 lows (7,202) and exposed to 7.073, although larger losses towards 6,824 have a higher degree of difficulty.

Despite prospects for more tightening, the BoE has not committed to any moves and on the technical front the Relative Strength Index points to oversold conditions. This may contain the slump and give UK100 the opportunity to rebound. However, it would need closes above the EMA200 (7,520) for the downside momentum to pause, which looks like a toll order at this stage.

Trade the News: View our Economic Calendar

Nikos Tzabouras

Senior Financial Editorial Writer

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.



Retrieved 14 Jun 2024

${} / ${getInstrumentData.ticker} /

Exchange: ${}

${} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.