Preview of the Bank of England quarterly inflation report 12 February 2015
It's Carney time again ladies and gentleman as we head to the Old Lady for an update on the UK economy and inflation
What do we know?
- The economy looked to pick up from the second half slump late in the year and has started 2015 quite well
- The services industry turned around a drop in December to get back to winning ways in January
- Headline inflation fell while the core rose in Jan, and that was an important move
- Unemployment continues to fall and wages show signs of a decent upward trend
- The housing market has been brought under control following the new rules
- Overall there's encouraging signs but it's early days
What will the report focus on?
It's called the inflation report but really it's an opportunity for the press to ask about the economy overall. Inflation is obviously important so any mention that inflation may start rising ahead of schedule will be bullish for the pound. Look for any changes to the forecasts. The BOE use a fan style projection to cover their arses.
Productivity is still the big buzzword in Threadneedle Street and it's this that will be the main driving factor of rate expectations. It's still not at a level that the bank are happy with and they will want to see whether the effects of higher wages starts pulling that along. A nod to wages and a shake to productivity will probably be enough to keep market hawks grounded.
Expect the UK elections to be thrown into the mix by the press and Carney will no doubt swerve any direct political questions.
If I had to park my bus in a spot I'd say that this meeting won't give too much away as it's too early in the year for them to make a real case for interest rate rises. It's likely to be a can kicking exercise out to the next report which will be two weeks before the elections. The data before then will have a lot to say.
Trading wise, I'm still liking cable longs and as I've missed out on the is move from 1.50 I'm going to be looking to scale in on a decent dip. If the dollar rally continues strongly then that might keep the topside in check so playing the pound in other pairs might be the best play. We've had one look at the tech below in EUR/GBP and I'll see how it plays over the report for either taking off some of my shorts from 0.8000, and/or playing a technical long. It won't take much to spring the pound up so be prepared for the unexpected. I'll have some levels up before the event itself
