BOE in a tough spot ahead of today's policy decision

A quick preview on what to expect from the BOE

No rate changes are expected and in light of the latest PMI readings earlier today, odds are that we are going to see the BOE stick with the status quo in today's meeting.

The UK economic growth momentum has slowed considerably since the peak in summer and while overall growth is still holding up, there is a fear that the slowdown may be more pronounced going into Q4 this year.

That puts policymakers in a rough spot when having to try and deal with rising cost pressures and high inflation. They have maintained that the factors at play are transient and while it may come to pass that inflation is 'transitory', how long will that be the case is once again the key question for central banks all around the world.

Given supply bottlenecks and capacity constraints, it is likely that the higher cost pressures will carry on to year-end and even perhaps next year. With fears of a surge in energy prices in winter also on the cards, the BOE is in an unenviable position.

I want to say that they are pretty much petrified about sending any wrong messages to the market and so that potentially leaves them in a place where they can't do anything at all, at least when it comes to today's meeting.

As such, as much as there are some mildly hawkish expectations on the BOE today, I fear that policymakers will end up leaning more towards the conservative side and disappointing those expecting a firm or more hawkish communique on policy.

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September 23, 2021 at 10:40PM
Justin Low
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