BoE likely to reveal its easing package – TDS

Research Team at TDS, suggests that the BoE is finally set to reveal its big “package” of easing measures at today’s MPC meeting with a 25bps rate cut, a £50bn expansion of QE, and an expansion of the FLS program.

Key Quotes

“Market sentiment has improved markedly since Brexit, but we think that the softer data is on the way, and look for substantial downgrades to the BoE’s growth forecasts. This week’s decision is about steering the macroeconomy, and not about fixing malfunctioning markets.

For the dovish market reaction that we’re looking for, we need to see our full package delivered, with the door left wide open for further rate cuts, and for the FLS program to become substantially cheaper so that financial institutions will have enough of an incentive to use it.

Cost-benefit analysis suggests that the risks to the economy of delivering too much stimulus are far smaller than the risks of delivering insufficient or overly delayed stimulus.

In rates, we look at a package of trades to reflect risks across different markets, including short Sept 16 short sterling contracts, steeper money market slopes, wider 2y GBPUSD basis, and US-UK 10y spread tighteners.

In FX, we look for the BoE decision to reinforce the considerably bearish fundamental view for GBP, although we’re cautious around the overhang of short positions.”