ING anticipates a 25 basis point rate hike from the Bank of England (BoE) this Thursday, lifting the Bank Rate to 5.50%. The key focus, however, will be on the language used in the BoE's statement, as it could reveal the central bank's plans for future tightening.
Expected Rate Hike: Economists almost unanimously forecast a 25bp rate hike from the BoE, raising the Bank Rate to 5.50%.
Statement Language: Markets will keenly observe the BoE's statement for hints of future tightening. The key phrase to look for is: "If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required."
Impact of CPI Data: The release of the August UK CPI data could also influence the BoE's decision and market reactions.
For Forex Traders:
- Currency Strategy: ING holds a slightly negative outlook on sterling later this year, believing that the BoE's easing cycle in 2024 will exceed current market expectations. Any hints of "sufficiently restrictive" policy could pressurize the pound.
- Investment Implications: Investors should closely watch the BoE's statement, as it may offer clues about the pace and scale of future tightening, which could have far-reaching effects on UK asset prices and yields.
- Monetary Policy Implications: Economists need to parse the BoE's language for signals on future tightening or easing cycles, especially in the context of the recently concluded ECB tightening cycle.
According to ING, the BoE's statement this Thursday will be a pivotal moment for assessing the GBP's direction. Any hints suggesting that the UK's policy rate has reached a 'sufficiently restrictive' level could negatively affect the pound. Traders and investors should keep a close eye on the statement to adjust their strategies accordingly.