Pound Climbs Ahead of BoE, but Policy Fireworks Unlikely: Experts

By Yasin Ebrahim

Investing.com – The pound climbed against the dollar Wednesday, ahead of the Bank of England's monetary policy decision due Thursday, but investors aren't betting on any hawkish surprise.

GBP/USD rose 0.14% to $1.3967.

The U.K. economy continues to gather pace, and inflation - at 2.1% on an annualized basis - is running ahead of the central bank's target, but the Bank of England, or BoE, is likely to point to temporary factors boosting inflation and ongoing uncertainty in its outlook for the economy as reasons to keep monetary policy on autopilot.

"[W]e do not expect any change to current policy or guidance at the forthcoming meeting," Daiwa Capital Markets said in a note Wednesday.

"Since the BoE published forecasts following its previous MPC meeting on 6 May, economic activity appears to have improved a touch ahead of expectations […] but the central bank will underscore again that the outlook for the economy, including the relative movements in demand and supply, remains highly uncertain," it added.

The bank's cautious view will be helped by the "recent pickup in new coronavirus cases - to more than four times the rate at the time of the MPC's May meeting - and delay to further economic reopening reminders of the downside risks," Daiwa added.

Others agree, and suggest the central bank will be keen to avoid dropping any hints that tighter monetary policy could soon be table.

"In reality, we don’t think the Bank will say anything particularly new on the timing of rate hikes at this next meeting," ING said. "For now, we’re in the camp looking for the first rate hike in 1Q23."

While a further upswing in price pressures could push inflation to 2.5% later this year, it is likely to "die down into mid-2022 as the reopening spikes of the next few months fade," ING added. "That, in turn, reduces the pressure on policymakers to exit the current level of stimulus."

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