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Forex pairs in this Article » GBP/USD
FXStreet (Guatemala) - Jacqui Douglas, Senior Global Strategist, Rates and FX Research explained that this morning’s Bank of England Inflation Report brought another round of good news, with further upgrades to growth forecasts, and further downgrades to inflation projections. Crucially, they explained, if MPC speakers are effective, we could see UK rates turn and fixed income markets rally as the “gradually” message sinks in”.

Key Quotes:

“It also brought with it the effective end of forward guidance, as the BoE did not introduce a lower unemployment rate threshold, but instead introduced a more qualitative form of guidance, and laid out a number of variables and factors that it will be watching to guide any future policy action”.

“On that decision, the MPC says that it “will seek to close the spare capacity in the economy over the next two to three years while keeping inflation close to the target”.

“To that end, it judges that there is scope for the economy to recover further before Bank Rate is raised and, even when Bank Rate does rise, it is expected to do so only gradually and to a level materially below its pre-crisis average of 5%.”

“After the minutes from the January meeting, the MPC seemed to be more united than it has been in the past, in talking about how there was “no immediate need to raise Bank Rate” and that “when the time did come to raise Bank Rate, it would be appropriate to do so only gradually.”

“We look for that trend to continue, but adding that “Bank Rate is likely to be materially below the 5% level set on average by the Committee prior to the crisis.” This will allow consumers and businesses to remain confident in near-term prospects, and that the BoE will continue to make progress in closing spare capacity, but at the same time deliver the message that markets should be cautious before pricing in too much tightening”.

So if MPC speakers are effective, we could see UK rates turn and fixed income markets rally as the “gradually” message sinks in”.
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