Introduction: All eyes on the Bank of England
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The US Federal Reserve delivered its first interest rate cut in more than a decade yesterday, reducing its target range by a quarter point to of 2%-2.25%. The US central bank also signalled its readiness to provide more support, as Fed chair Jerome Powell talked about the impact of weak global growth and the US-China trade war.
But he disappointed markets by saying that this was “not the beginning of a long series of rate cuts” – although he added: “I didn’t say it’s just one rate cut.”
Donald Trump was not pleased as he had called for a more aggressive cut in interest rates, and tweeted: “Powell let us down.”
Donald J. Trump
(@realDonaldTrump)….As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place – no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!
Markets also did not like it, in particular Powell’s description of the move as a “mid-cycle adjustment to policy” rather than the start of an aggressive easing cycle.
Wall Street sold off, with the Dow Jones losing 1.2% and the S&P 500 down 1.09%. European stocks are set to open flat to slightly higher.
At midday today, the Bank of England announces the outcome of its monthly meeting. The City is not expecting any changes to Bank rate, which is set to stay at 0.75%. The Bank’s latest quarterly growth and inflation forecasts will be the main focus.
It is the last round of forecasts before Britain is scheduled to leave the EU on 31 October, and the central bank is expected to downgrade its 2019 growth forecast, possibly to 1.3% from 1.5% in May.
Until now the Bank has assumed an orderly departure as the basis for its forecasts but with the risks of a no-deal Brexit rising under the new prime minister Boris Johnson, it will be interesting to see what the Bank’s thinking is.
Kallum Pickering, senior economist at Berenberg Bank, said:
The BoE is likely to set out its stall for the various possible Brexit outcomes this week.
We expect the BoE to offer two sets of guidance: As its base case, the BoE will signal continued rate hikes over the medium-term, on the assumption that there is an orderly Brexit on October 31 – or even in another lengthy delay.
But more than before, we expect the BoE to emphasise how it may act in the downside scenario of a hard Brexit at the end of October. With pro-Brexit Boris Johnson becoming UK Prime Minister, this has become a much more pertinent issue in recent weeks. Expect the BoE to signal that ’more likely than not’ it would ease policy to help buffer the shock of a no deal Brexit outcome.
The Agenda
- 8.15am BST: Spain manufacturing PMI survey (July)
- 8.45am BST: Italy manufacturing PMI (July)
- 8.50am BST: France manufacturing PMI (July)
- 8.55am BST: German manufacturing PMI (July)
- 9am BST: Eurozone manufacturing PMI (July)
- 9:30am BST: UK manufacturing PMI (July)
- 12pm BST: Bank of England rate decision, minutes of meeting and growth and inflation forecasts
- 12.30pm BST: BOE governor Mark Carney to hold press conference
Updated
