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August 2017

Sterling holds ground ahead of Bank of England rate decision

Published: Tuesday 15 August 2017

  • Sterling holds ground ahead of Bank of England rate decision
  • UK inflation growth report likely to revise down
By Daniel Gould
Sterling is trading as the second strongest currency for the week so far, next to the Euro, as markets await the results of today’s meeting of the Bank of England (BoE). Dubbed “ Super Thursday”, we will get an interest rate decision, the minutes of the meeting, plus the Quarterly Inflation Report, all due midday. Governor Carney’s press conference, which will be watched closely, is due 30 minutes later. The vote split and updated economic forecasts from the Quarterly Inflation Report will be the main focuses.

Normally, there are nine voting members in the Monetary Policy Committee (MPC) but this was lowered to eight earlier this year, after Charlotte Hogg resigned. Kristin Forbes has been the most hawkish member of the committee and has been voting for a hike since March. She has now left the committee and her replacement Silvana Tenreyro is seen as generally on the dovish side, making a 6-2 split the most likely outcome this month.

The Inflation Report is likely to revise down growth forecasts from 1.9%, although Mr Carney and his colleagues may not want to strike too dovish a tone, in order to avoid a run on the Pound. It’s still our view that it is unlikely that rates will be hiked in 2017, as the current economic landscape does not really support that view.

UK Service Sector Purchasing Managers’ Index (PMI) data was released at 9.30am, providing more positive data for the UK economy. As the service sector accounts for over 75% of Gross Domestic Product (GDP), these results are watched very closely. The latest data posted at 53.8 for July, higher than last month’s 53.6. Any figure above 50 denotes growth in the sector, so this is viewed positively, although optimism in the sector was recorded as subdued in the latest survey. In contrast, the results are encouraging: overall growth has increased from the disappointing four-month low in June; and employment has grown the fastest in the sector since January 2016.

Finally, US Non-Manufacturing PMI is released later this afternoon. The focus today will be UK-centric – we expect the market to range trade ahead of the data releases around midday, taking into account recent highs and lows and the lack of market direction from the mixed data currently being released.

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