Financial Event: Bank of England meeting
What is the BoE meeting?
The Monetary Policy Committee (MPC) of the Bank of England holds regular meetings to decide on the base interest rate in the UK and on other fiscal policies. The MPC chooses an interest rate they believe is required for reaching the government’s inflation target which currently is placed at 2%
The MPC meetings are held eight times a year (almost once per six weeks). The Committee is comprised of nine members: one governor, three deputy governors, one chief economist and four external members voted directly by the chancellor.
When is the next BoE meeting announcement?
2020 MPC dates
The next BoE MPC
announcement is on Thursday 18th of June 2020
. Inflation report will be published on the same day.
|Date of MPC announcement
||Inflation report publication
In online trading BoE MPC meetings are considered very important dates because they officially set the base interest rate in the United Kingdom, the rate at which the Bank of England will be lending money to other banks.
Consequently, this influences the rates of commercial banks and other money lending institutions which strongly affects the entire economy by changing inflation, consumer spending and demand for Stocks, Bonds, Currency and other Securities.
Additionally, during each meeting, the committee is evaluating whether the economy requires Quantitative Easing; a Bank measure used to increase money circulation to enable more spending.
Traders are advised to monitor MPC meetings closely and to adjust their strategies accordingly.
Why is it important to traders?
Traders try to forecast what the future monetary policies and interest rate in the UK will be. If their forecast turns out correct then they can change their plans before the official announcement to minimize losses and raise profits. If the interest rate is higher then it will probably increase the purchasing power of the pound but negatively affect the stock market, bonds and other securities. The opposite stands true when the interest rate is lower.
Important when trying to predict how the voting on policy will go is knowing who is in the MPC as well as taking other major economic factors, such as Brexit, into consideration.
To find out who the current nine MPC members are visit the Bank of England website
How does the MPC influence inflation?
The MPC sets monetary policy to meet the inflation targets set by the government. To do so, it uses two policy tools: The Bank of England Base Rate and the Asset Purchase Facility. These enable the Bank to affect the circulation of money in the entire economy.
The Bank of England Base Rate (BOEBR)
The BOEBT is the interest rate that the BoE charges other banks for overnight loans. It strongly affects the interest rates that commercial banks charge for loans.
With a lower base rate banks borrow more money from the BoE. In effect, their own interest rate is lowered together with the borrowing costs for retail and institutions, enabling the former to borrow and spend more money. With a higher rate banks borrow less money from the BoE and this increases their own rates which then increases costs for retail and institutions ending up in less borrowing and more saving.
These can affect the global financial markets and FX rates together with domestic inflation and the unemployment rate in the UK.
The Asset Purchase Facility
With Quantitative Easing (QE) banks create new money and use this money to buy assets. This BoE process is handled by the Asset Purchase Facility which mainly buys government bonds from the private sector and a selection of high-quality commercial bonds.
This extra flow of money in circulation raises demand for purchased assets which causes asset prices to rise and lowers their yields. It mainly affects spending and asset liquidity throughout the economy while reducing the cost of borrowing money for retail and institutions.
The MPC can sell part or the entirety of its assets to reverse any increase in inflation rates that surpass the pre-set target set by the government.