Four times a year the Bank of England makes a formal announcement about interest rates and other related policies like government bond purchasing, and predicted growth in the UK GDP. Known as 'Super Thursday' in financial circles, these quarterly announcements tend to have both immediate and long term effects on the strength of the pound, the FTSE 100 and general economic sentiment in the UK. 2nd February 2017 saw the first Super Thursday of the year, and here I’m going to look at the key decisions, the press conference given by Mark Carney afterwards, and the reactions in the markets.
No Change in Interest Rates
The BoE announced that interest rates would not be changed, and neither would government and other bond purchasing levels. Changes to rates later in the year or in 2018 have not been ruled out, however most analysts now believe rates won't change until Brexit is completed, which many expect to happen in early 2019. While economic events between now and then may cause rate changes to be necessary, the most likely event seems to be that the BoE will not want to add any extra elements of instability while the process of leaving the EU runs its course.
UK GDP Growth Predictions Were Upgraded
In November 2016, at the last Super Thursday, growth for this year was predicted at 1.4%. However, the 2nd February announcements upgraded this to 2%. The reasons given for this were that consumer spending does not appear to have been diminished in the period following the Brexit referendum, and domestic demand has been high. This is good news, however it is worth nothing that the BoE does anticipate growth dropping down to 1.4% in 2018.
Brexit the Key Theme in Carney's Press Conference
Another big takeaway from 2nd February’s Super Thursday was that the BoE does not want the increased growth predictions to downplay the potential consequences of Brexit. While UK consumers have remained resilient, Carney predicts that there will be 'twists and turns' on the route to exiting Europe, and his sentiments on how things will play out came across as something of a warning that things are highly unlikely to proceed without any economic consequences even though data from the latter part of 2016 was more encouraging than many predicted back in June.
The Market Reactions
In the currency market, the pound started off fairly strong in anticipation of the announcements, with many hoping for a rate change after the (to many) disappointing lack of change announced by the US Fed the day before. Following the announcement that there was nothing in the Super Thursday news to boost Sterling, it promptly began to fall again. The European stock markets also ended the day down, with the Stoxx 600 index down 0.24%, the DAX down 0.27% and the French CAC 40 index down too (but only by 0.01%). however, the FTSE 100 finished the day up by 0.47% - probably due to the weakening of the pound against the dollar, with many dollar earning companies strongly affected by that exchange rate included on the FTSE 100.
While this was a fairly uneventful day of announcements where some market watchers may have been hoping for more to be done, 'wait and see' policies seem to be the order of the times with rates staying the same just about everywhere in the first quarter of 2017.