Risking credibility

Today's news headlines:

‘UK economy shrinks unexpectedly in August raising recession risk’. Britain is almost certainly already in recession after the economy posted a 0.3% drop in output for the month of August. The fall in GDP was led by a sharp decline in manufacturing activity along with a slight contraction in services. The only way for the UK to avoid a Q3 recession would be for September output to rise 1.1%, which is unlikely given the extra public holiday and period of mourning for the late Queen Elizabeth’s funeral. Analysts predict the recession will last into early 2023 at least, with consumers and businesses facing tough conditions in the upcoming months. (Bloomberg)

‘Bailey puts BOE credibility on line with vow to end gilt buying’. It has been a difficult couple of weeks for officials at the Bank of England, with the government’s fiscal plans forcing them to conduct emergency gilt purchases. But now Governor Andrew Bailey’s credibility is on the line after he vowed to wrap up bond-buying by the end of the week, prompting a fresh sell-off for UK assets. Sterling plummeted below the $1.10 handle while longer-dated gilts sank, as markets expect further turmoil. Privately, Bailey has briefed bankers that the BoE could extend the program beyond this week if needed, but with bond purchases working against the bank’s tightening policy, the status quo can only last so long. (Bloomberg)


Today

UK assets teetered on the brink overnight after Andrew Bailey signalled the end of the BoE’s emergency asset-purchase program. The US Dollar rose as investors anticipated slower growth and tighter monetary policy while stocks mostly fell. 

Events

UK GDP m/m: -0.3% vs 0.1% previously
UK Industrial Production m/m: -1.8% vs -1.1% previously 
UK Manufacturing Production m/m: -1.6% vs -1.1% previously
BOE MPC Member Haskell speaks: 9.00AM
BOE MPC Member Pill speaks: 12.35PM
US PPI and Core PPI m/m: 1.30PM
ECB President Lagarde speaks: 2.30PM
FOMC Meeting Minutes: 7.00PM


Interbank rates*:

GBP/USD: 1.1008
GBP/EUR: 1.1315
EUR/USD: 0.9728
USD/CAD: 1.3784

 

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*Indicative interbank rates taken on the day of writing. Please speak to your Dealer to find out the current rates available for you.