Bank of England Rate Decision
Bank of England Monetary Policy Committee (MPC) consists of nine members as they announce their interest rate decision every month usually on the first or second week of the month and they announce their decision according to the current economic conditions after concluding their two days meeting which enables them to meet the banks set target inflation rate.
A major factor that the BoE's MPC sets is the overnight borrowing rate which is important for deciding the short term rates.
By using the monetary policy, the BoE's attempts to influence prices to keep inflation inline with set target rate while sustaining steady employment and economic growth.
Financial markets are very sensitive for any change on interest rates as it will address controlling hand on inflation and growth in the economy, and considered a major market mover.
The increase will have a negative impact on the stocks markets yet over short term as rising interest rates tend to move with economic growth that generates inflation and a robust economy is reflected in vibrant stocks; as for bonds higher interest rates tend to lower their value and raise their yields. While on the other hand, it makes the currency more attractive to buy against the other currencies and financial instruments as the yield is higher on the currency supported by strong economic growth.
Plus it is a good indicator on the health and growth of the economy which should be reflected on the currency. To be conclusive the effect is positive with pound and negative for the stock indices and the level of effect is very high and is one of the most renowned market movers.
|Best Case Scenario||The best case scenario will be if BoE kept its assets buying levels steady around 175 billion pounds, reflecting the desired response from the economy to the program, and continuing to show the improvements witnessed in the services sector and rising confidence, which will lead to more optimism about the general sentiment.|
|Worst Case Scenario||The worse scenario will be if the BoE expanded its assets purchasing program, buying more long term governmental bonds, hinting that the economy still needs a harder push to get the credit market back on track after the fetal damage caused by the crisis.|