After the Fed's big drama, the Bank of England's interest rate decision will be held on Thursday (August 1). In the increasingly difficult situation of Brexit, will Bank of England Governor Carney follow the Fed's easing policy, or at least change the wording of previous interest rate hikes? After the Fed's resolution drama, the Bank of England's interest rate decision will be held on Thursday (August 1). In the increasingly difficult situation of Brexit, will Bank of England Governor Carney follow the Fed's easing policy, or at least change the wording of previous interest rate hikes?
The continued depreciation of pounds and the decline in bond yields means that the Bank of England's prediction of a gradual tightening policy based on the assumption of a stable Brexit may be meaningless. Carney said last month that the Bank of England was considering how to resolve the unprecedented division between market rate cut pricing and Bank of England expectations.
market expects the benchmark interest rate to remain at 0.75%. But even if the Bank of England does not cut interest rates today, it cannot be ruled out that the pound will continue to fall.
The newly appointed prime minister is very tough. The UK is stepping up preparations for a no-deal Brexit, intending to spend an additional £2.1 billion (US$2.6 billion) to ensure that the UK is ready to withdraw from the EU by the end of October, with or without a deal.
Last week, Johnson took office as British Prime Minister , and the new government he led has vowed to withdraw from the EU without a deal in three months unless the EU agrees to renegotiate the agreement of former Prime Minister Theresa May.
"There are 92 days left before Brexit, and we must strengthen our planning to ensure we are ready," said the new British Chancellor of the Exchequer Jaweed. "We want to get a good agreement without guarantee terms. But if we don't get such an agreement, we will have to leave the EU without a deal."
Here are some things the monetary policy committee will consider:
pound depreciation
pound pound
Since May, the pound pound trade-weighted exchange rate has fallen by about 4%, which increases the possibility of medium-term inflation acceleration. The economy performed poorly in the second quarter and could lower its short-term growth expectations, and if the Bank of England hopes to perform more moderately, it may focus on these issues.
As the deadlock continues between Prime Minister Boris Johnson and EU negotiators, the pound is likely to fall further. According to Bloomberg economist Dan Hanson, estimates that if there is no deal to leave the EU, the pound could fall another 13%.
Early cut rate
A year ago, the Bank of England raised its key interest rate to 0.75%, and said that further gradual tightening of monetary policy may be needed if the economy performs in line with expectations. But things have changed dramatically now, and interest rates have remained the same since then.
Amid long-term uncertainty, the differences between the Bank of England and the market seem to be growing as traders become more pessimistic about the possibility of a stable Brexit in the UK. But the Bank of England may see a tone change in the future. Policymaker Michael Saunders said last month that Brexit could prevent the Bank of England from raising interest rates. Sanders is one of several policymakers in recent months talking about the need for central banks to raise borrowing costs.
Sanders said the Bank of England's basic assumptions about a successful Brexit and the gap between investors' concerns about no transition agreement Brexit means that the Bank of England's official outlook may not have a big impact on public policy expectations. Other members of the monetary policy committee said in recent months that interest rate cuts are more likely.
Labor Market
UK labour market remains the most active part of the economy. Throughout 2019, employment rates continued to rise, and unemployment rates fell to the level of the 1970s. Improved wage growth makes up for this, which currently outperforms inflation. Often, this will be a signal to consider increasing interest rates, but there are other factors to consider.
Economic weakness
Facts have proven that UK economic growth has been unstable this year, partly due to companies stockpiling large amounts of stocks before the original Brexit deadline at the end of March. The UK economy accelerated to 0.5% in the first quarter, but the Bank of England expects a payback period, with the UK economy achieving zero growth in the three months to June.
Consumer spending provides support for the economy, but weak corporate investment continues. If the UK reaches a Brexit deal with the EU, the latter may improve, giving businesses a clearer sense of this, but only three months to ensure it.
Source: Global Forex Network
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