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Bank of England in focus today

Published: Thursday 21 June 2018

  • Brexit progress
  • Markets unconvinced by latest Federal Reserve discussions
​​By Denzil Rickerby

The Bank of England (BoE) meeting will be the focus today, where it’s widely expected that the central bank will keep monetary policy unchanged: this would mean holding the bank rate at 0.50%, while asset purchase target remaining at GBP 435 billion. So the markets will turn their eyes to the BoE’s Minutes and how the nine Monetary Policy Committee (MPC) members vote. Known hawks due to their more aggressive policy stance, Ian McCafferty and Michael Saunders, are expected to vote for an interest rate hike. Meanwhile, the other members are more likely to vote for the status quo, which would bring another 7-2 vote like the previous two months. Any deviation from this will bring volatility and will be reflected in the currency markets. Any hawkish surprise from the Minutes or the Committee could spur on strength for Sterling, as the markets remain sceptical of any Bank of England move, given the lacklustre UK wage data and the growing risk of a hard Brexit. 

The June MPC meeting does not include updated economic projections, and there will be no press conference to gain clues from. The meeting Minutes, however, will help serve as an indicator for the likelihood of an August interest rate hike. If hopes of an August rate increase falter, the chance of a rise in November would be more remote. Hawkish Ian McCafferty is leaving the Committee and would be replaced by Jonathan Haskel, an Imperial College Business School professor. So the central bank could lose the slight hawkish tilt, as it remains to be seen how Mr Haskel might be in his policy approach. 

Brexit progress

An attempt to secure a “meaningful vote” that could have potentially given MPs the power to stop Britain leaving the EU without a deal has been defeated. The UK government's Brexit bill has passed through Parliament after UK Prime Minister, Theresa May, saw off a revolt by Tory MPs. The vote passed 319 to 303 after would-be Tory rebel MPs were given assurances they would have a meaningful say. May has welcomed the passing of the Brexit bill as "a crucial step" in delivering a "smooth and orderly Brexit". Peers accepted the amendment to the EU (Withdrawal) Bill sent to them from the House of Commons, meaning the bill now goes for Royal Assent, becoming law. 

Markets unconvinced by latest Federal Reserve discussions

US Federal Reserve Chair, Jerome Powell, maintained that "the case for continued gradual increases in the federal funds rate is strong," but has warned about rising trade concerns, which could postpone decisions into investment and hiring. At that meeting, Federal Reserve Open Market Committee (FOMC) officials indicated that they were likely to approve two more rate increases, bringing the 2018 total to four. The markets remained unconvinced, with the Federal Futures markets showing only a 50 percent chance for a fourth hike in 2018.

Baby news in New Zealand

And congratulations to the Prime Minister of New Zealand, Jacinda Ardern, on the birth of her daughter. Ardern is one of only two elected leaders in contemporary history to have a baby while in office. While her Deputy Prime Minister, Winston Peters, is covering her maternity leave, she has stated she will be keeping on top of cabinet papers and other key business while she is on leave. Brava!

A Hunter walking through the jungle found a huge dead elephant with a pigmy standing beside it.
Amazed, he asked, “Did you kill that?”
“Yes” the pigmy said.
The hunter asked, “How could a little fella like you kill a huge beast like that?”
The pigmy said, “I killed it with my club.”
The astonished hunter asked, “How big is your club?”
The pigmy replied, “There’s about 60 full time members and 30 affiliates.”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
ALL All Day The Organization of Petroleum Exporting Countries Meetings    
EUR All Day Eurogroup Meetings    
GBP 09:30 UK: Public Sector Net Borrowing 6.2b 3.4b
GBP 12:00 Bank of England Official Bank Rate Votes 2-0-7 2-0-7
GBP 12:00 Bank of England Official Bank Rate 0.50% 0.50%
GBP 12:00 Bank of England Monetary Policy Summary    
GBP 12:00 Bank of England Purchase Facility Votes 0-0-9 0-0-9
GBP 12:00 Bank of England Asset Purchase Facility 435b 435b
USD 13:30 US: Philly Federal Manufacturing Index 34.4 28.9
USD 13:30 US: Unemployment Claims 218k 220k

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