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Forex Flash: August shaping up to be pivotal month for BoE – RBS

FXstreet.com (Barcelona) - Expectations for BoE policy easing have ratcheted back, while additional BoE asset purchases have been ratcheted back significantly in recent weeks. Even after Carney’s arrival on 1st July, expectations do not appear to be particularly aggressive. To some extent this reflects the view that the MPC has a preference for credit easing over QE, most obviously due to concerns over the inflation/growth trade-off.

According to Paul Robson, an FX Trading Specialist at RBS, “This change of view is evidenced by the pull back in inflation expectations. The August meeting looks the main 'event risk' for the summer as the MPC is due to provide its formal response to the Treasury's review of monetary policy in the August Inflation Report (the Report will be published on 7 August).”

Moreover, MPC members will be required to provide 'an assessment of the merits of using intermediate targets' (e.g. unemployment rates or nominal GDP growth). “This would be an obvious point for the BoE to signal a change in policy, especially if the data do not improve through the summer. It seems unlikely that Carney has been brought in to simply sit on his hands. A beefed up Funding for Lending Scheme seems unlikely to be sufficient to drive a sustained recovery in economic growth.” Robson adds.

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