The Bank of England Preview: Dark side of Brexit makes MPC uncomfortably numb

The Bank of England Monetary Policy Committee (MPC) is widely expected to keep the monetary policy on hold at the meeting with the November Inflation Report set to highlight Brexit uncertainties.
Brexit darkens the growth and policy outlook for MPC with the main question being what kind of trading relationship will ultimately evolve from the Brexit negotiations.
The MPC is likely to express increased satisfaction with the development of the UK economic fundamentals, especially the UK inflation.

Mario Blascak, PhD Independent Analyst

The Monetary Policy Committee (MPC) of the Bank of England is expected to keep the monetary policy unchanged at the November meeting at its decision scheduled for Thursday, November 1 at 12:00 GMT. Apart from the rate decision, the November Inflation Report is out with the Bank of England Governor Mark Carney justifying the decision at the subsequent press conference.

The reasons behind the broad market consensus not to expect any changes is clear, the Brexit uncertainty. In fact, it is all about Brexit these days as the time for both the European Union and the United Kingdom to close the Brexit deal is ticking up. After the October European summit failure, the need to come up with some kind of the deal in November is imminent, as there is no more time to negotiate further.

The UK regular pay growth accelerated to 3.1% y/y in the three months to August after posting three 0.4% monthly increase, making the regular pay growth rate the strongest in almost a decade. The corresponding total pay including bonuses rose from 2.7% y/y to 2.8% y/y in three months to August while the unemployment moved toward a multi-decade low of 4.0%.

The labor market tightness has started finally feed through into somewhat higher wages, allowing employees to be compensated a bit for the previous rise in inflation and keeping the real, inflation-adjusted wages in positive.

The key policy target, the UK headline inflation decelerated to 2.4% over the year in September missing the market estimate of 2.8% y/y rise, while core UK inflation stripping the consumer basket off food and energy prices at the same time decelerated to 1.9% y/y.

In terms of inflation expectations of UK households, recent surveys indicate that inflation should stay relatively weak. IHS/ Markit’s Household Finance Index survey indicated that inflation expectations over a 12-month horizon fell to their lowest in two years, even as households still reported a steep rise in current living expenses.

The move of inflation moving back towards the inflation target and the inflation expectations of UK households well anchored should keep the Bank of England in check, at least for now. The Bank of England now has more time to maneuver and watch how the labor market is affecting UK wages and inflation at the end. The next move on UK rate will see the UK officially outbound from the European Union making August or possibly November next year conditionally realistic. Of course depending on the upcoming Brexit deal and the data. That’s the sure shot.

Market probability of Bank of England hiking the Bank rate

Source Bloomberg

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Blaščák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

AUD/USD trims losses, still near 0.6900

AUD/USD remains well on the defensive, adding to Wednesday’s pullback and trading close to the key 0.6900 contention zone ahead of the opening bell in Asia. Discouraging prints from the Australian labour market report have weighed on the Aussie, which has remained unable to take advantage from the marked pullback in the Greenback.

USD/JPY slides back below 158.00 as USD reverses post-CPI gains

USD/JPY extends the previous day's pullback from a three-week high, attracting follow-through selling and sliding below 158.00 during Thursday's Asian session. Traders remain on high alert amid speculation that authorities will step in to prop up the Japanese Yen. The US Dollar, meanwhile, reverses Wednesday's hot CPI-led gains to April 2025 highs as US bond yields retreat on China bond-buying talk, further pressuring the pair.

Gold: Upside remains capped by $4,200

Gold regains the smile and leaves behind three consecutive days of losses, advancing to the $4,170 region per troy ounce on Thursday. The precious metal’s recovery comes amid the fresh offered stance in the Greenback and declining US Treasury yields while investors remain cautious ahead of the Fed’s Warsh speech on Friday.

Bitcoin rebounds to $82,000 as PPI hits 6.3%, nearly $1B liquidated

Bitcoin (BTC) recovered near $82,000 on Thursday after briefly falling below $80,000, paring losses triggered by hotter-than-expected US inflation data. September PPI inflation rose 6.3% YoY, exceeding forecasts of 5.3% and marking its second-highest level since November 2022. Core PPI inflation climbed to 5% annually, above expectations of 4.4%.

The Iran war will eventually end. Tariffs won't. Here's the problem

Two cost shocks are in the September Consumer Price Index (CPI), and they have different half-lives. Energy is up 20.4% on the year and accounts for about 1.3 points of the 3.7% headline, and that shock reverses when Oil does: Brent was back at its pre-war price on July 1 and above $100 again by the end of the month, after the ceasefire collapsed on July 8.

Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff

Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.