Published on 17/05/2017 1:43:34 PM | Source: Angel Broking Pvt Ltd
BOE Monetary Policy Update - Angel Broking
Rising inflation to weaken Britain’s economic activity; prompts BoE to stand pat
On 11 th May’17, seven out of eight policymakers from Bank of England’s Monetary Policy Committee voted to maintain the borrowing rates at 0.25 percent. It left its plans for government and corporate bond purchases which amounted to £435 billion unchanged. Since this was a highly expected move markets did not react when the move was initially disclosed. However, the statements made by the BoE governor fuelled the markets with bearish swing. Mark Carney trimmed the growth forecast to 1.9 percent from 2 percent in 2017 and raised a red flag on surging inflation. He warned Britons that the living standards would take a hit in 2017 given the Brexit woes that will push pound lower in turn boosting import prices, consumer prices along with meagre pay deals. Not alone this, markets expected another member (Michael Saunders) to join hands with Kristin Forbes in favour of rate hike which did not go as per plan. All the above factors played with the market sentiments and pushed the Sterling Pound lower. GBPUSD spot plunged by 0.43 percent while GBPINR spot plunged by 0.71 percent.
On Brexit Negotiations
Britain’s Prime Minister Theresa May shook the world by announcing her intentions of holding snap general election on 8 th June’17. She felt that an election now was needed as many parties caused hindrance to the government’s Brexit plans. Latest polls have shown a rise in support for Britain's opposition Labour Party, although Prime Minister Theresa May's Conservatives maintained a commanding lead ahead of a June 8 election expected to define the terms of the country's EU exit.
On Britain’s economy
* Manufacturing Service Construction – In the month of April’17, the three important sectors of Britain gave a tremendous performance. Manufacturing PMI surged to 57.3 from 54.2, Service PMI surged to 55.8 from 55.0 and the Construction PMI surged to 53.1 from 52.2. Reason behind this uptrend could be attributed to the strongest inflows of new work since January 2014, with the domestic market remaining the principal source of new contract wins.
* Labour market – Britain’s labour market shows a mixed picture. Unemployment rate is at its lowest rate at 4.7 percent since the 2008 financial debacle. However, pay growth has remained subdued over recent months which have hampered the pockets of Britons given the rising consumer rates.
* Inflation scenario - Since 2015, the inflation rate of Britain has been rising and is currently hovering close to 2.3 percent in April’17. Reason behind this spark could be attributed to pound's slide since June's Brexit vote which has pushed up consumer prices quickly coupled with rising fuel costs.
* Gross Domestic Product – Prelim GDP growth rate for quarter ending March’17 plunged to 0.3 percent from previous quarter’s 0.7 percent highlighting that British shoppers were feeling the pinch from rising prices that hindered with their spending patterns.
Summing up, the BoE committee has ruled out any rate hike possibilities in the next couple of sessions given the weak growth trend and swelling consumer rates. The only optimistic statement made by the committee was the chances of hiking interest rate "by a somewhat greater extent" than markets are currently pricing in despite expected slowing in near term growth provided the economic fundamentals of UK are on track. Having said that, outlook for GBPINR spot (CMP – 82.64) in the near term looks bullish and could strengthen
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