GBP/USD[1] Price Analysis & News
- BoE Bank Rate and APF To Remain Unchanged
- Focus on Possible BoE Taper Announcement
- Upgrade in Economic Projections Expected
Overview
The Bank of England is expected to maintain policy settings with the bank rate left at 0.1% and APF at GBP[2] 895bln. As such, given the significant improvement in the UK outlook amid a successful vaccination program and gradual easing of lockdown measures, the focus for this meeting will be on whether the central bank tapers the pace of weekly gilt purchases, which is currently at GBP 4.4bln.
Time to Act or Time to Signal Taper Intention
The BoE has already acknowledged that they will have to reduce the weekly pace of asset purchases at some point this year in order to hit the GBP 150bln APF target increase by the end of 2021. An argument for announcing a taper now is that at the current GBP 4.4bln pace, QE purchases would reach capacity by mid-late August, roughly the time at which the next MPR is scheduled and thus by tapering now, this would reduce the risk of a larger taper at a later point, which may have a bigger propensity to prompt unwarranted tightening. The alternative would be to signal an intention to taper and carry out the action at the June meeting, which is scheduled three days after the UK reaches the final steps of its roadmap out of lockdown. That said, with markets seemingly 50/50 as to whether the BoE tapers now or at a later date, the decision will matter for GBP in the short run. A decision to taper now is likely to see a knee-jerk higher in GBP.
Bank of England Weekly QE Purchases
Economic Projection Upgrade
The case for the BoE
