UK Bank of England meeting day
0The Bank of England’s Monetary Policy Committee meet today and we expect that they will decide to keep the Official Rate unchanged at 0.5% and the level of quantitative easing (QE) unchanged at £375bn.
Although there is a small risk of an extension of asset purchases in QE given that May is an Inflation Report month – and so would give room to explain any policy changes, recent cyclical data have been more upbeat than expectations, in particular the first quarter GDP numbers and the PMI surveys.
In addition, the Bank and Treasury announced an extension of the Funding for Lending Scheme on April 24th, and it would take time for the effects of that to feed through. While we believe that the Funding for Lending Scheme is probably viewed by policy makers as a complement to – rather than a substitute for – QE in the medium-term, in the shorter term, it is likely to reduce the argument for an immediate extension of QE.
That said, we continue to believe that, on balance, further asset purchases in the medium-term are more likely than not, given what’s going on in the domestic and global economies. As for when markets may begin to focus on the possibility of more QE, the August monetary policy meeting looks to be the next key date, following as it does the arrival of Mr Carney as governor of the Bank of England.
We’re also due today the UK industrial production (IP) data for March, and an advance of 0.3% month on month would be consistent with the first Q1 GDP estimate. Any material deviation could translate into a GDP revision in the second Q1 GDP estimate – and equally would be a focus point for markets.
While the recent streak of positive UK data surprises is likely to help support the pound in the near term, at least against the euro, we continue to see scope for dovish policy innovation on Mr Carney’s arrival driving sterling weaker over the medium term.
James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla
