Spread betting - What to expect from the Bank of England on Super Thursday

The Bank of England is in focus again this week as policymakers convene for their monthly rate-setting meeting against a backdrop of slackening growth in Britain’s economy and the prospect of Brexit looming large.

Attention shifts to the UK’s central bank on so-called Super Thursday, when its latest interest rate decision is released alongside minutes from the meeting and the year’s second inflation report.

Markets are not banking on any change to interest rates, but the meeting and accompanying inflation report will offer clues about the future course of monetary policy and may also provide an indication as to what the Bank will do in the event of Britain leaving the European Union.

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Rate Cuts?

 

For the first time in a while, the issue of cutting rates may be back on the agenda of the nine-strong Monetary Policy Committee (MPC).

For the last two years or more the talk has been about when the BoE would pull the trigger and raises its benchmark rate. But while rate cuts have never been off the table, the May meeting could see the first meaningful discussion of a rate cut for a long time.

Sparking the resurgent interest in looser monetary policy is a string of poor UK economic data last week that threatens to derail the recovery.

The monthly PMI readings for Britain’s manufacturing, construction and service sectors missed expectations, with activity across the UK economy apparently dipping to a three-year low.

According to survey compilers Markit, the data pointed to just 0.1% growth in April, down from 0.4% in the first quarter of the year.

Slack growth could create the conditions for more easing, but looks like it’s the risks of Britain leaving the EU that are most pressing right now for the MPC.

According to the Sunday Times, UK banks have had informal discussions with the BoE over a potential cut to rates.

Brexit Risks

 

On the issue of the UK’s referendum on the European Union, many expect the Bank to flag heightened risks for the economy, even if governor Mark Carney is keen to stress its independence.

Mr Carney has already said Brexit is the “biggest domestic financial stability risk” facing Britain and he is almost bound to note Markit’s assessment of the PMI data, in which it suggested uncertainty ahead of the vote is the key reason for depressed private sector activity.

The governor of the Bank of England has had to defend his remarks on the EU referendum.

“The Bank must assess the implications of the UK’s EU membership for our ability to achieve our core objectives of maintaining monetary and financial stability,” he said last month.

“The Bank has a duty to report our evidence-based judgments to Parliament and to the public.That is the fundamental standard of an open and transparent central bank."

Inflation Report

 

In addition to the usual monetary policy statement and minutes, the Bank will also release the second inflation report of the year, which will offer a little bit more solid data for traders to chew on.

A slump in the pound ought to be boosting inflation, but the lacklustre pick up in prices continues. Inflation forecasts may be cut along with the growth outlook, particularly in light of the recent PMI readings, potentially providing more ammunition to the doves inclined towards lower rates.