British Pound: What to Expect from the Bank of England on Thursday

The Bank of England (BOE) is anticipated to leave rates unchanged at 0.50 percent on Thursday at 7:00 ET, but this won’t even be the market-moving part of the announcement. Instead, traders will be looking toward the BOE’s policy statement in order to see if the Monetary Policy Committee (MPC) will end their quantitative easing (QE) program, as they suggested in their July 9 policy statement. There is evidence arguing for and against an expansion to the BOE’s QE program, as the central bank has established a target of £125 billion in purchases despite the fact the UK Treasury approved purchases up to £150 billion. First, clues that the central bank may consider buying another £25 billion in assets come from recent lending data published by the BOE, as they said that lending to non-financial corporations fell a record £14.7 billion during Q2 compared to Q1. The BOE also said that the annual rate of M4 money supply growth (excluding intermediate Offshore Financial Centers) fell 0.7 percentage points to 3.1 percent in Q2, all of which suggests that the central bank’s asset purchases haven’t had the desired effects of boosting money supply and increasing lending.

At the same time, this very evidence may indicate that the level of asset purchases that the UK Treasury and BOE have been willing to commit to will never have the desired effect. With the public likely to be outraged at any effort to expand asset purchases beyond the previously approved amount of £150 billion, the data may really just prove that the program has been a failure and not worth pursuing further. That said, if the BOE were to end their asset purchases, they will likely try to shine a more positive light on it, as they can cite recent improvements in UK economic data, such as the rise in the purchasing manager’s indices for the UK manufacturing and services sectors to more than 1-year highs in July and a steady increase in mortgage applications in this year to a 14-month high of 47,584 in June. All told, currency traders have been looking at QE as negative factor for the British pound when it comes to initial announcements, and this sentiment shouldn’t change much when it comes to Thursday’s news.

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