BoE August Meeting: A Wild Ride?
Quick update: the Bank of England’s August policy meeting is shaping up to be a game‑changer – or at least a real bumpy ride for the pound. It’s the kind of decision that will have traders tapping their fingers on keyboards, and economists scratching their heads. Let’s dive in.
1⃣ What’s the Deal?
In July, the BoE had a chip‑minded meet‑up that was “finely balanced” – a fancy way of saying the vote was tight. The June decision to hold rates steady looked like a polite nod. But in the meantime, CPI suddenly decided to overheat, throwing a wrench in the MPC’s plans.
Now, the big question: will the MPC cut the Bank Rate by 25 bps or keep it humming at 5.25%? The odds are almost a coin flip – markets are pricing a 50/50 chance. Even if a cut creeps into place, it won’t be a slam dunk; most likely we’re looking at a narrow 5‑4 or 6‑3 split.
2⃣ The Vote: A Split Decision
- Pro‑cut side: Deputy Governor Ramsden and external member Dhingra pushed for a 25 bps drop in June. They’re likely to repeat their stance now.
- Hold‑steady camp: Governor Bailey, Deputy Governor Breeden, and possibly Newcomer Lombardelli (who’s probably lining up with Bailey). These three tick‑tock out the idea that cutting rates too soon could leave the economy hanging.
- The middle ground: Around half of the MPC members sit in the grey area – they’re not ready to cut, but they’re not 100 % against it either.
- Bottom line: a split is almost guaranteed; that means the pound is likely to wobble regardless of the outcome.
3⃣ Inflation: The Unsland of Stories
The headline CPI hit the tidy 2% goal in May and stayed there in June – a moment of relief. But the joy isn’t all‑major: core CPI (the stubborn part that the MPC loves) jonesed at 3.5% year‑on‑year for two months straight. And services CPI— the soybean rib in the inflation stew—stuck at 5.7%.
What does this mean? Inflation might appear to be dipping, but underlying pressure remains sticky.
4⃣ Labour Market: A Mixed Bag
Unemployment’s at 4.4% in the months leading up to May, but data quality remains shaky. Joblessness is steady at its last 2021 level, while wages are still thick. The Bank thinks the growth in earnings and the bump in minimum wage mean the inflation target is still out of reach for now.
5⃣ The Expectation: What to Watch in August
Here’s the brass tacks:
- Rate cut? Select that 25 bps move. If a cut happens, there won’t be a clear timeline for future cuts – it’s going to stay “data‑driven.”
- No cut? The Bank stays at 5.25% until it feels a persisting risk is enough to warrant a change.
- Regardless, we’ll get a Press Conference with Governor Bailey. The NB conference gives him a chance to spill the beans, hint at future policy, and disabuse critics of the “no‑talk” stance since the election blackout.
6⃣ GBP Reaction: To the Left or Right?
Don’t be surprised if the pound takes a bumpy ride. Splits are classic triggers for volatility: a cut stokes a rally; holding steady may pop a dip. Hover around 1.3000 sees the upside potential orbiting the historic high of 1.3140. Meanwhile, 1.28 plus the 50‑day moving average form a defence ring – slide below and we’ll see the 100‑day line lurking just bellow.
My personal take: While the pound’s about to hop, I’d zone in on selling if it heats up, given that US growth beats the other developed markets and the Fed may not be too aggressive on cuts.
7⃣ Closing Thoughts
In two words: “Brace for impact.” Whether the BoE hands the next 25 bps cut or sticks with 5.25% will be decided by an almost-even split, so the pound will need your risk‑management skills. Stay tuned, get the whispers from Governor Bailey’s press conference, and keep your eyes on the key support and resistance levels while sipping your coffee.
