GBP markets wait on Carney's plans

• Inflation report and forward guidance due at 10.30 BST

• Fed members heighten expectations of a September taper

• German industrial production due at 11.00 BST

Today is set to be the day that sees the largest change in the way that monetary policy in the UK is conducted since the Bank of England became independent from the Government in 1997. As part of today’s Quarterly Inflation Report, Governor Mark Carney, the first foreign BOE Governor, will announce a plan of ‘forward guidance’ that will keep rates lower here in the UK for the foreseeable future.

Guidance of this nature has happened in a fair few places and takes many forms. The recent communications from the ECB, for example, have been very vague and have promised to keep rates low but without any discernible macroeconomic target or timeline. The Fed originally decided to give their plan a timeframe of around 18 months and then specifically tie when policy would start to tighten to an unemployment target of 6.5%.

We expect Carney to tie it to either unemployment, like the Fed, but hopefully have some form of wage indicator in there as well. The issue that I’ve banged on about most in the past year or so is not inflation but the difference between inflation and wage settlements. Especially with the decrease in the savings ratio of late, as people attempt to keep their lifestyle going by raiding savings pots, price increases and their relation to wages are key to the survival of the recovery. Without one, we cannot have the other.

The statement from the team on Threadneedle St starts at 10.30 BST.

The near-term risk to sterling is very high as a result, and GBP is therefore lower across the board this morning. The fact that despite some world beating increases in PMIs and yesterday’s massive industrial production numbers sterling has been unable to really kick on is a sign that people are not backing GBP.

Hawkish comments overnight from two Fed members overnight galvanised investors who believe that a reduction in Federal Reserve stimulus is coming in September. The biggest surprise came from Chuck Evans, who normally resides on the dovish side of the fence, coning out and saying that the central bank will probably decrease its bond buying program later this year and could do so as early as at the next meeting, data depending.

Have a great day.

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