FX Viewpoint | GBP: BOE in focus | Article – HSBC VisionGo

GBP: BOE in focus
Finance  ·    ·  6 mins read

  • BOE Deputy Governor Broadbent, representing the middle ground of MPC, does not appear to join the more hawkish camp…
  • …marginally weighing on the near-term outlook of the GBP, in our view
  • We continue to expect GBP-USD to move lower over the medium-to-long-term, amid weaker post-Brexit UK growth

BOE Deputy Governor Broadbent seems to distance himself from the more hawkish camp, marginally weighing on the GBP, in our view

The GBP may face some marginal downside following Bank of England (BOE) Deputy Governor Ben Broadbent’s speech on 22 July, looking at mismatches in the economy. The speech leans towards highlighting the temporary nature of many of the post-pandemic inflationary pressures that the economy is currently seeing. Indeed, Mr. Broadbent states that he is “not convinced that the current inflation rate…should mean higher inflation 18-24 months ahead” (Bloomberg, 22 July), echoing the more recent observations of BOE Monetary Policy Committee (MPC) members Jonathan Haskel and Catherine Mann. In other words, Mr. Broadbent appears to be distancing himself from the more hawkish camp within the BOE that has emerged in recent weeks.

In mid-July, two BOE MPC members suggested the possibility of an earlier end to quantitative easing

On 14 and 15 July, comments and speeches from BOE MPC members, Deputy Governor Dave Ramsden and Michael Saunders, took a more hawkish turn, as they both suggested that the time may be coming to move away from the significant accommodation the bank is currently providing. 

Mr. Broadbent’s contribution is also notable in that he has never once, in 103 MPC meetings, voted against the majority outcome (or against the BOE Governor). As such, he can likely be taken as someone who represents the middle ground of the MPC, as opposed to the aforementioned “hawks” or the more dovish tilting MPC members such as Jonathan Haskel and Silvana Tenreyro. 

Market focus will be on the BOE’s 5 August meeting and inflation report

Rates market pricing is already looking for rate hikes to begin in Q2 next year, as are our economists. However, as we have pointed out in the past, the GBP appears to have moved even further in anticipating UK outperformance. This pushback against any near-term tightening, although modest, may still cause some froth to come out of the GBP. The next main event will be the BOE’s MPC announcement and inflation report on 5 August when new forecasts will also be assessed for the future path of monetary policy.

We expect GBP-USD to move lower over the medium term

Besides the monetary policy prospects, any emergence of downside risks would also hit the GBP. Those risks could be more visible as the UK government’s support schemes (e.g. VAT and stamp duty cuts) roll off in the months ahead. We continue to see GBP-USD moving lower over the medium term. Brexit costs could also add to the weakening in potential growth and the broader fall in the GBP’s long-term fair value, in our view.

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