There does not appear to be much that is super about it though, with some saying it is a foregone conclusion that Governor Mark Carney and colleagues will cut rates by 25bps, having held fire at the July meeting despite the Brexit fallout.
There are also expectations in some quarters that the central bank will launch new bond purchases in a mini revival of quantitative easing.
The degree of certainty in markets about a rate cut being announced could be dangerous as it gets priced in ahead of confirmation and therefore has little positive impact, while any departure can trigger a big sell-off.
Central bank announcements can put fresh momentum into markets and economies if handled well, but when the details are all signalled so clearly ahead of time the potential for a postive effect is greatly reduced.
Economists and investors seem less certain about the return of QE than the rate cut, but there is sufficient expectation already built to indicate a wave of market disappointment could be forthcoming if Carney and co fall short in this respect.
Rowan Dartington Signature’s Guy Stephens noted Carney has been so clear with his recent forward guidance he does not really have any room to change course.
“Markets were slightly bemused by the Bank of England’s 8-1 vote last month in favour of leaving monetary policy unchanged,” said Stephens. “Instead, the committee chose only to hint at a move this month. The minutes stated that most members expect monetary policy to be loosened in August. Governor Mark Carney’s forward guidance has been called into question many times before, but this particular message surely is difficult to interpret any other way: an interest rate cut, quantitative easing, or a combination of the two. The market is convinced that some form of action will come.”
Chief investment strategist at Lombard Odier Investment Managers, Salman Ahmed expects not only the rate cut but the return of quantitative easing, in some form.
“At August’s Bank of England meeting, we expect Mr. Carney to unveil a package of easing containing both a rate cut, and more importantly a broader program of quantitative easing of government bonds and corporates, he said. “We estimate that this program will be around £100bn over six months. We are starting to see that several central banks, for example the Bank of Japan, have started to move away from using interest rates as a policy tool, instead focusing on direct credit easing measures via direct asset purchases. This is being done in order to mitigate some of the beggar-thy-neighbor syndrome.”
