Three reasons the BoE may still opt for 50 bps – SocGen
20.07.2023, 13:07

Three reasons the BoE may still opt for 50 bps – SocGen

Economists at Société Générale see three reasons the BoE may still opt for 50 bps.

Key support levels for GBP/USD are situated at 1.2850/1.2810

Firstly, services and wage inflation may have peaked in June, but both remain uncomfortably high relative to the 2% target. The MPC will not have confirmation that services prices are coming off the boil until two weeks after the August MPC. 

Secondly, investors are steering clear of Gilts because of lingering UK inflation. Higher and more persistent inflation means investors ask for higher compensation to hold Gilts vs Treasuries and Bunds. Only when inflation expectations fall sustainably will the premium and cost of borrowing/interest burden for the government decrease. Reassuring investors means not taking your foot off the monetary brakes too soon. 

Thirdly, the BoE and Governor Bailey in particular faced a torrent of criticism in recent weeks for fanning the inflation flames by keeping policy too loose for too long. This could tempt the bank into overdoing it to prove its critics wrong. 

Tactically, key support levels for GBP/USD are situated at 1.2850/1.2810. EUR/GBP resistance runs at 0.8720/0.8750.

 

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