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5 Mar 2013
Forex Flash: 30% chance of the BoE extending QE – TD Securities
The UK Services PMI revealed the sharpest pace of business growth in nine months, while job creation picks up. The manufacturing report shows contracting employment at its quickest pace in 40 months, so the two sectors should combine to leave employment growth roughly flat overall. “The PMI report also noted that the combined PMIs are consistent with GDP growth of about +0.1% Q/Q in Q1, though our own tracking for UK GDP at the start of March is -0.1% Q/Q, so it’s still a very close call for whether the economy expands during the quarter, or contracts and makes for a triple-dip recession”, wrote analyst Jacqui Douglas.
Given that the BoE will be meeting and deciding on its policy this week, TD Securities analysts point to a 30% chance of the BoE extending QE, “but no further QE (both in March and for the rest of the year) remains our base case forecast”. Funding for Lending (FLS) should continue as BoE's Fisher has already said they likely need one more quarter of data before they can make some preliminary readings on its effectiveness.
“Markets now seem to be positioning for less risk of further stimulus at this week’s meeting, with 5-10s steepening as markets price out the odds of more QE”, Douglas said. “We will still get the announcement though of how the BoE is planning to reinvest the £6.6bn from its APF that is maturing this month, where we suspect that it may deviate from the old buckets and concentrate a little more on the 5-15y area, although with such a small amount we don’t expect that announcement to be a substantial market mover”, the TD Securities analyst concluded.
Given that the BoE will be meeting and deciding on its policy this week, TD Securities analysts point to a 30% chance of the BoE extending QE, “but no further QE (both in March and for the rest of the year) remains our base case forecast”. Funding for Lending (FLS) should continue as BoE's Fisher has already said they likely need one more quarter of data before they can make some preliminary readings on its effectiveness.
“Markets now seem to be positioning for less risk of further stimulus at this week’s meeting, with 5-10s steepening as markets price out the odds of more QE”, Douglas said. “We will still get the announcement though of how the BoE is planning to reinvest the £6.6bn from its APF that is maturing this month, where we suspect that it may deviate from the old buckets and concentrate a little more on the 5-15y area, although with such a small amount we don’t expect that announcement to be a substantial market mover”, the TD Securities analyst concluded.