parmveer.sunnar's picture

Super Thursday Brief

As Governor Carney’s speech draws to a close, Super Thursday is all but over and as expected, the Bank of England kept both the interest rates and Asset purchases on hold at 0.50% and 375B respectively. Votes also stayed the same for both the Official Bank Rate and the Asset purchase Facility. However it was the comments that followed in both the Monetary Policy summary as well as speech by Governor Carney that are perhaps most notable.  

The BoE took a notably more dovish stance than expected as record low interest rates now seem likely to persist into much of 2016 as only Ian McCafferty voted to raise rates. Importantly the economic growth forecast was trimmed down for both 2015 and 2016 as risks from emerging markets and slower global growth generally seems likely  to persist. The Inflation forecasts were also revised lower and Governor Carney pointed to a slight shift in the BoE’s current target as the aim now seems to be to return inflation sustainably to 2% in “around” the next two years. This is a notable change in rhetoric from the BoE as previously the mandate has been to return inflation to target levels “within” two years. According to a Reuter’s poll a rate rise is now expected in Q2 of 2016, slightly sooner than last months 2017 prediction which many market participants held. However inflation is likely to remain below the 1% level until the second half of 2016 on the back of weaker food and energy prices. So the argument can be made that the BoE is potentially becoming more flexible in their inflation targets, a question that was raised to Governor Carney during questions.  

Assessing the chart we can see that Cable has had a sharp fall on the back of this event driven risk setting up a test of the major 1.5111 support area. 

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