All the eyes this week are on the Bank of England as the Inflation Report, policy statement and MPC Minutes will be released on Thursday.
Last time that this happened, in August, markets expected a “Super Thursday”. However, the reaction was not Super. GBP lost 0.77% against the USD to then rebound by 0.24%.
In the last few days, the GBP tried timidly to regain some of the ground lost back in the second half of August , however we think that the MPC meeting alongside the Inflation report might push the GBP back down again.
These are the main three indicators to watch: economic growth, inflation rate and labour market figures.
Only the labour market so far is showing a solid pace of growth that is more than consistent with the pre-crisis levels. However, the economic growth is still an alarming matter. GDP per capita reached the pre-crisis level just at the end of 2014 and the actual pace followed by the real GDP is reassuring, but not enough to consider the UK economy completely recovered. The Inflation rate is still the major weakness. In the last inflation report, the inflation was considered to remain close to zero in the near term, because of the effect of falling energy prices, and to reach the 2% target within 2 years.
However, the November inflation report still refers to a tough economic scenario including the Chinese turmoil, the commodity crisis and the euro-Zone weakening. For all these reasons, it is very unlikely that the inflation outlook will be improved and we see the first rate increase to happen not before the Q2 2016.
Guest post by Ilaria Valtimora – Fidelis Market Consultants Ltd.
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