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Bank of England - heading back to the dovecote

06 Agosto 2017, 01:11 | Azura Castelo

It looks like being a lazy summer for the Bank of England

BRITAIN-ECONOMY-BOE-STRIKE

Mark Carney's comments came as the Bank voted to hold rates and cut growth forecasts. Weaker GDP growth partly reflects a weaker supply-side performance (with weaker productivity growth), which translates into weaker wage growth and adds to the squeeze in households' real incomes.

It is expected that inflation, which is also referred to as CPIH in the United Kingdom, will increase by 0.1% in the third quarter to 2.7% and predicted to reach 3% in October 2017.

Prior to the BoE's policy announcement and the Inflation Report, the pound had been rising to new 2017 highs against the United States dollar.

Wages have been hit by rising prices - a direct result of the 13% drop in the value of the pound following the Brexit referendum previous year. "That was slightly stronger than expected in May, and much stronger than total household real income which fell by 1.3% in Q1", the Inflation report noted.

But he said wages will start to outpace inflation next year, while growth will also begin to pick up.

The Bank slashed its economic growth forecasts for 2017 to 1.7% from 1.9% and lowered next year's estimate to 1.6% from 1.7%.

Kristin Forbes' departure from the BoE will likely lead to a 6-2 vote in favor of keeping interest rates unchanged today, with Ian McCafferty and Michael Saunders to remain the two dissenters.

And with signs that the United Kingdom is heading for a chaotic Brexit the Bank could be justified in taking a more vocal stance - you can be assured, a chaotic Brexit will hammer Sterling even further.

CPI inflation was 2.6 percent in June, having risen from 0.5 percent in May past year following the fall in sterling against other currencies. It also shaved its growth forecast for next year to 1.6 per cent from 1.7 per cent, but kept 2019 at 1.8 per cent.

Britain's main share index, whose internationally focused constituents tend to gain when sterling falls, climbed to the day's high, up 0.4 percent, with mid-caps also up 0.3 percent at their highest level of the day.

However, the MPC voted unanimously to close the drawdown period for the Term Funding Scheme (TFS) on February 28, 2018, as planned when the scheme began last August as part of the post-referendum economic stimulus measures.

The MPC's next interest rate vote is not due until November.

But James Smith, economist at ING, said a rate rise was still unlikely this year.

For now, though, the GBP/USD looks like it wants to head lower, especially if it manages to break the key 1.3150 short-term support level on a daily closing basis. Firstly because consumer prices slipped from 2.9% to 2.6% in June, suggesting that the central bank may need to assess whether prices will ease further, after topping out in May.



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