Don't Expect Bank of England to Wait, Easing may Begin Next Week

Dont, Expect, Bank, England, Wait, Easing, may Begin, Next Week, Fundamental Analysis, fx trader, forex

1 Jul 2016

Investors are debating over whether the Bank of England ease policy at the July 14 MPC meeting or wait until August Quarterly Inflation Report when new post-Brexit forecasts will be ready.  There are many dimensions to monetary policy, and the first move could come next week. 

Of the various parts of the UK body politic, the Bank of England appears to be the most prepared for Brexit.  It had been very clear in its assessment of the economic and monetary consequences.  What was once a risk scenario will likely become its base case. New forecasts might be helpful, but not essential at this juncture.  Preemptive action need not await the fine tuning its assessment to a tenth of a decimal point.  

The BOE's Finance Policy Committee met this week.  It may have decided to reverse its March decision to raise the counter-cyclical increase in the capital buffer of UK exposure of banks to 50 bp (of risk-weighted assets) from zero.  This could be announced as part of the Financial Stability Report slated for release on July 5.   Also, the BOE is going to make its liquidity injections more frequent; moving from monthly to weekly operations.

Among the takeaways from the Great Financial Crisis was the aggressive action early produces more results and sooner than a gradualist approach.  Recall the Bank of England (and Federal Reserve) launched QE a few years before the ECB and BOJ.   The short-sterling interest rate futures market expect BOE to act early again.