Why the MPC's voting matters at Thursday BoE's interest rate decision..
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| GBP v EUR has picked itself up off the floor again after an improved UK PMI figure for July was announced this morning.
Usually, the preliminary PMI figures released around 1-week before the end of a month are enough to show an accurate forecast of an economy (85% total). However, it seems there was a 'storming' end to July for the UK.
An overall reading of 51.8 was far better than the expected 51.2 and rightly, the Pound is the green across the board today. The biggest move has been against the Euro, as the EU saw it's final PMI figure fall slightly to 51 from 51.2, creating a clear divergence in the month for economic performance.
Money markets see a 96% chance of a BoE interest rate cut this Thursday with a high probability for a 25bp cut (already included in GBP's price). 2 members will likely evidence the rising downside risks to jobs and maybe two others will point to the higher inflation number.
This year the MPC have struggled to agree on what to do with the UK's stagflation issue and we think the same will occur in a couple of days time.
The more votes for a larger cut will see Sterling weaker and the more to potentially hold rates will see the currency stronger. Currently, analysts see one more 25bp cut this year (after August), which would be in line with the Bank's 'slow and gradual approach' over the last 2-years of 1 cut per quarter (two more expected by summer 2026).
However, the recent events over in the US could change that trajectory. The repricing of what the Fed could do this year will impact what other central banks do and in particular what the BoE does. |
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