The Fed passes the baton to the Bank of England, which today will announce the interest rate decision. The Monetary Policy Committee (MPC) will publish the minutes of the next meeting and the quarterly report on inflation, and the head of the Central Bank Mark Carney will hold a press conference.
It is expected that the regulator will keep the interest rate unchanged - at the level of 0.75%. However, the intrigue about his future actions remains. Clouds gathering over the global economy and increasing uncertainty around Brexit may force the British Central Bank to reconsider its policies.
When the Bank of England published the latest inflation report in May, the United States and the Middle Kingdom were close to concluding a trade agreement, and the deadline for withdrawing Albion from the European Union was postponed to October, and the economic prospects were not bad.
The Central Bank was set to raise rates, as inflation and wages in the country grew. In this case, it was assumed that Brexit will be "soft." Since then, the situation has somewhat changed.
World economic growth has slowed, trade negotiations between the two largest economies have not yielded results. At the same time, the world's leading central banks have already abandoned plans to tighten policies, and either hinted at a reduction in the rate, or lowered it.
In addition, the United Kingdom has a new prime minister, and, judging by the dynamics of the pound, investors are not pleased with his statement. He promises to withdraw the country from the EU at any price, making everyone nervous, including the Bank of England. According to the new leader of the country, the time has come to act, so the Central Bank must also take into account the growing risks of a "tough" Brexit.
At the June meeting of the MPC, the main problems voiced by the regulator were related to the prospects for the global economy. At the same time, officials of the Central Bank noted that if their forecasts are correct, then a tightening of monetary policy will be required. These forecasts were based on the fact that Britain and the EU will be able to conclude an agreement on the terms of Brexit.
However, given the fact that the Fed has reduced the interest rate for the first time in 10 years, it is difficult to imagine that the Bank of England will continue its policy of raising it. In addition, if the British Central Bank continues to consider the "soft" version of the main scenario, it will be a rather bold act.
According to MPC member Andy Haldane, the UK is a unique country. Unemployment here is at the same minimum level in the last 50 years as in the United States, while at the same time, borrowing costs are as low as in the eurozone. The Bank of England's chief economist believes that easing of monetary policy may be necessary only if there are clear signs of recession in the country, and warns that one should not expect the BoE to imitate the Fed or the ECB blindly from BoE: the British regulator will not take the path of monetary expansion only because that his colleagues want to play it safe, looking at the slowdown in global GDP.
It is assumed that the Bank of England still recognizes the increased risk of implementing the "tough" Brexit and its destructive impact on the markets, but will not make any changes in the parameters of the monetary policy until the conditions for exit from the EU are known.
If, at the end of the July meeting, the British Central Bank reiterates the need to tighten the monetary rate in the event that its forecasts are implemented, then it will support the pound sterling, since the Bank of England will be practically the only major central bank to talk about an increase in interest rates. However, if the increase is not mentioned at all, the GBP / USD pair will continue to decline.
