Bailey to Offer Clues on November Rate Cut in Wyoming Speech

Image © Pound Sterling Live, Still Courtesy of Bloomberg TV.

Bank of England Governor Andrew Bailey has the chance to finesse expectations for the timing of the next interest rate cut when he speaks later today.

Bailey will speak at the central bank conference in Jackson Hole, Wyoming, at 7PM UK time. Any significant FX market reaction stemming from the comments will therefore likely have only have a visible impact on Monday.

"Bank of England Governor Bailey speaks early morning Saturday at Jackon Hole. His comments could cause interest rate expectations to adjust in early trading next week," says Kristina Clifton, an analyst at Commonwealth Bank.

The Bank cut interest rates on August 01 and are not expecting another rate cut until November. "We also agree that November is the most likely time for the next interest rate cut. The BoE’s cut on 1 August was a close call with only 5 out of 9 members voting for the cut," says Kong.

Elliott Jordan-Doak, Senior UK Economist at Pantheon Macroeconomics, says the August S&P Global flash PMI signals that the Bank of England has no need to cut Bank Rate at back-to-back meetings in August and September.

"The output index of the composite PMI rose to 53.4 from 52.8 in July, suggesting that growth is accelerating," he explains. "Firms are confident to hire again; the MPC will be wary of employment growth in a tight labour market."

Pantheon Macroeconomics think the strong PMI outturn strengthens the case for the Bank to take a gradual approach towards reducing Bank Rate, given the emphasis placed by rate-setters on the need to generate slack to bring down wage growth.

If Bailey's speech verifies this assessment, the Pound can remain supported for longer. "Bank of England Governor Andrew Bailey speaks today in Jackson Hole and we think he may emulate Powell’s approach in saying as little as possible. Bailey does not have to deal with aggressively dovish pricing (-39bp by year-end), but the UK still needs to gain much more confidence on the inflation front," says Francesco Pesole, an analyst at ING.

"With core inflation remaining stubbornly high, reducing the potential for rate cuts, solid Q2 growth figures and optimism about a new government, the pound still looks well positioned for the coming months," says Michael Pfister, FX Analyst at Commerzbank.