The Bank of England Minutes from the 9 February meeting on monetary policy was somewhat more dovish than the market had anticipated. Our expectation was that the decision to increase the asset purchase target by £50bn to £325bn was unanimous, but it turned out that two members of the committee, David Miles and Adam Posen, preferred to increase the programme by £75bn. While the current programme runs over three months, it was not specified how the dissenters wanted to spread out the purchases. The market considered prior to the release that there would be three dissenters – but that these had preferred not to do more QE at all. The result was a complete shift in market sentiment and the interpretation was that the MPC clearly upholds a dovish stance and that more gilt purchases are more likely to be announced when the current programme finishes.
QE programme is likely to be extended in May
Our base rate indicator clearly suggests that more QE will be announced in May. No less than eight out of ten input factors are below trend and five of these are substantially below fair value (defined as more than one standard deviation away from 10-year mean). Especially low consumer confidence, money growth and declining disposable incomes for households are weighing down on the indicator. Only the most recent pick-up in service sector sentiment and still high current inflation suggest some normalisation of rates. The outlook for monetary policy today can be compared to 2009; back then, the BoE ended up buying gilts worth £200bn to combat the economic and financial crisis. To avoid a technical double dip recession, we think the BoE will end up having spent the same amount again when this year is over, i.e. QE totalling £400bn.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Don't miss it out!
You can be one of the five winners of this contest, with prizes of up to $10,000 in trading accounts and more gifts.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
Opinions expressed at FXStreet are those of the individual authors and do not necessarily represent the opinion of FXStreet or its management. FXStreet has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.Any opinions, news, research, analyses, prices or other information contained on this website, by FXStreet, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXStreet will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.