Upcoming BOE Policy Meeting: What To Expect?

Upcoming BOE Policy
Meeting: What To Expect? 

The Bank Of England (BOE) will hold its policy meeting
on Thursday, releasing the latest monetary policy summary and interest rate
decision. However, interest rate is widely expected to remain at 0.10%, while
possibilities for negative interest rates will again be put aside but not
eliminated. Investors will be more focused on the bank’s policy statement and
the speech by Governor Andrew Bailey.

Compared to the RBA, the BOE have little room left for
cutting interest rate unless they decided to adopt negative interest rates,
which the bank previously labeled as complex and unnecessary at the moment.
Therefore, the bank will most likely look at other policy tools available to
help in the country’s economic recovery from the pandemic.

The BOE’s current policy tool is its Asset Purchase
Facility (APF) announced in March to tackle to pandemic’s impact. Similar to
the Fed’s Quantitative Easing (QE) program, the APF aims to repurchase gilt (UK
government bonds) up to £745B, providing smooth market functioning and further
money supply circulating in UK’s economy.

Most central banks are expected to deliver a slightly
neutral tone during their policy meeting as they are still closely monitoring
the impact of previous tools and also stimulus offered by their governments.
Further implementations of aid package by the bank will depend on economic
conditions for the third quarter.

Putting policy tools aside, investors will focus more
on the comments from BOE’s speech concerning the current risks faced by the UK.
One of the market’s major risk is a second wave of the virus, which could
further jeopardize the country’s economic activity and cripple its recovery.
Furthermore, concerns towards a no-deal Brexit are building up as the December
31 deadline crawls nearer. Negotiations remained in a deadlock even after both
sides agree to intensify talks in July.

Thus, we can conclude that the BOE will most likely
address the risks above while maintaining a more patient stance before taking
further actions. Any sudden decision by the bank will bring large impact for
the pound (GBP).