Baxia Markets
June 24, 2021

UK Economists Hopeful

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Today we have a round of important releases coming from the Bank of England that can move the Great British Pound in one way or another in the markets. The three anticipated events are; the Official Bank Rate, the Monetary Policy Summary, and the MPC Official Bank Rate Votes.


What are they? 


The Official Bank Rate is the interest rate at which the Bank Of England lends to financial institutions overnight. In many countries, the overnight rate is the interest rate the central bank sets to target monetary policy. This is the classic definition that holds true for all central banks around the world. The rate decision is usually priced in the market, so it tends to be overshadowed by the Monetary Policy Summary, which is focused on the future.


The Monetary Policy Summary is a  tool the MPC uses to convey to investors the current monetary policy. Crucially, it contains the outcome of their vote on interest rates and other policy measures, along with general thoughts about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes.


Finally, you have the MPC Official Bank Rate Votes. This is pretty self-explanatory. It is essentially the result of the vote. How many people voted to increase the rate, how many people voted to decrease the rate, how many people voted to keep the rate the same. Why is this release important? It shows you how united or divided the Monetary Policy Committee is when it comes to this extremely important decision. It could show clues as to where the next vote will end up, causing traders to take big decisions early and potentially moving markets.



What are the expectations for the Bank of England Official Rate?


Previously in May 2021, the official rate was at 0.10%. The expectation for June 2021 is for the official rate to be unchanged at 0.10%. Will that be the case?



Professional Insight


“If (inflation is) not temporary we know what to do about that. We can push bank rate up from its historically low level and we know what that will do to demand.” These are the thoughts of Dave Ramsden, Deputy Governor for Markets and Banking at the Bank of England.


“What we’re seeing is a strong bounce-back of activity…. People have accumulated a lot of savings, they’re going out and they’re spending, particularly in those areas where we couldn’t go out in the last year or so.” These are the thoughts of Jon Cunliffe Deputy Governor of Financial Stability at the Bank of England.


Both professional insights give us hope for the future. The recovery in the UK is on the right track and while we might not fully recover in a month or two, things could turn around sooner than people expect. 



What happens if...


We observe a more hawkish outcome than what was expected? The market will like this situation. The policy will be considered expansionary. When governments get hawkish, it means they want to stimulate markets. The British Pound will increase in value versus other currencies.


What happens if...


We find that the state is more dovish than what was expected? The policy is intended to decrease the monetary expansion to fight inflation. This means markets would be less active than before. So we can assume that the British Pound will reduce in value versus other currencies.



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