The growing headline and the underlying inflation and a combination of stable unemployment at 4.7% have complicated the policy stance of BOE.
Despite today’s GDP data, BOE will need to see inflation softening and the BOE will increase wages to soften the fashion to give pigeons a strong case to cut rates.
Against this background, ING Economics mentioned:
“Inflation needs to show further progression, and at least on the headline, which is unlikely before November … but this news is not all bad. The bank eventually cares the most about the inflation of the service sector, and we think there is scope to reduce the forecast of sowing slightly.
On the labor market, ING Economics suggested that slow wage increase could potentially adjust the rate of BOE.
High inflation and interest rates, and soft wages can physically affect disposable income and economy.
Will next week’s inflation and labor market figures confirm the need for action? Britain’s inflation and labor market figures are scheduled to be held on September 15 and 17 respectively.
A sharp decline in inflation and wages can be potentially green lights, which can cut the November BOE rate. Increasing hopes of cutting November rate will increase weight on GBP/USD, highlighting sub-$ 1.35.
GBP/USD response for July GDP report
Next to the UK GDP report, GBP/USD climbed a high of $ 1.35804 before falling at a low of $ 1.35521.
However, in response to the report, GBP/USD fell from $ 1.35580 to $ 1.35496, which reflects the feeling of economic recession.
On Friday, September 12, GBP/USD was below 0.15% to $ 1.35507. The BOE’s complex policy Outlook is the opposite with the US Federal Reserve, which is widely expected to cut rates next week.
