Bank of England To Signal More Stimulus?

BOE Meeting Due Tomorrow

The Bank of England’s August MPC meeting, due tomorrow, is taking on a great deal of focus as the recovery effort continues in the UK. With most sections of the economy having at least partially re-opened now, the BOE is hoping for a smooth, gradual recovery, which relies on avoiding any further lockdowns as a result of a second wave of the virus.

With this in mind, all economists polled ahead of this month’s meeting are looking for the BOE to hold policy levels unchanged. However, downside risks are certainly noted and some of those polled, including Goldman Sachs and Bank of America Global Research forecast that the BOE is likely to signal the need for more stimulus which will most likely be delivered in November.

Further Lockdown Risks Affecting Outlook

The key downside risks stem from the fact that certain parts of the country are noting a clear upward trend in new infection rates which recently led to the fresh introduction of lockdowns in Leicester and Manchester, which was announced last week). With the prospect for further local lockdowns to be introduced, the uncertainty which the BOE cited in the outlook last time around has visibly grown.

Inflation & Growth Forecasts to be Updated

Investors will be monitoring the updates in the bank’s growth and inflation forecasts which are likely to have both been revised lower, as well as the bank’s unemployment rate forecasts. With current government support for laid off works due to begin being tapered off this month ahead of expiry in October, the risks of a surge in unemployment are extremely highs. This situation is further exacerbated by the fact that for those businesses which were able to avoid closure during the height of the pandemic, the extremely weak demand and activity levels seen post-lockdown mean that the risks of subsequent closure is now a very real threat. In consideration of this situation, the guidance from the BOE is likely to be fairly dovish with the bank’s governor Andrew Bailey looking to reassure the market that the BOE stands ready to do more as necessary to help support the economy.

Technical Views

GBPUSD (Bullish above 1.3191)

The rally in GBPUSD has seen price trading up to retest the long-term bearish trend line from 2014 highs, just ahead of local resistance at the 1.3191 level. With price above the 50dma the outlook remains bullish with an eventual break above the level and a move up to the 1.3516 level the next objective for bulls. To the downside, if we see any retracement lower from here, bulls will be looking to defend the 1.2649 level as support.

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