On the face of last week’s Bank of England rate decision, it was very uneventful. Rates the same & asset purchases the same. Some investors had been hoping for a repeat of the Bank of Canada’s hawkish shift by tapering bonds and bringing forward interest rate hikes. The only dissenter to the on-hold narrative was Andy Haldane. However, he is on the way out shortly from the Monetary Policy Committee, so that didn’t register with voters.

Minutes paint a better picture

Looking at the minutes the BoE has adopted a more optimistic outlook for the UK economy. They are expecting the country’s GDP to fall by less than forecast back in February, with the low Covid case numbers and success of the vaccine rollout clearly playing a big part in this. Crucially, there is an expectation that the estimated £150 billion of savings that consumers have accumulated over the past 14 months or so will steadily be released into the economy in the months ahead.

GBP & FTSE reaction

The GBP responded in a confused fashion with the meeting and shopped around before moving higher sharply this week helped by a very poor NFP report.

The FTSE 100 was far more confident and moved higher on the higher growth forecasts. However, the sell-off in stocks has since brought in lower.


June taper

This look like a June taper can be expected now as there have been two upbeat MPC meetings in a row now. One approach would be to look for suitable technical areas to buy the GBP into the next BoE meeting. The key risk, as always, is on some kind of vaccine-resistant COVID-19 variant.

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