Sterling Waits for BoE Decision on Slowing Emergency Support

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Sterling hovered around the 1.39 mark as traders waited for a Bank of England policy meeting later on Thursday where the central bank will say the British economy is rebounding strongly and that it might begin to slow its bondbuying.

The BoE will announce its latest economic forecasts at 1100 GMT when it is expected to keep its benchmark interest rate and its bondbuying programme unchanged, for now, but could announce that it is slowing the pace at which its buys bonds.

Slowing that pace would represent a moderate step towards the moment when the BoE begins to reverse its emergency stimulus. Most economists polled by Reuters last month pencilled in a first rate hike only in 2023.

Britains relatively successful COVID19 vaccine rollout has allowed the economy to reopen faster than many had expected and with consumers and businesses stocked up on cash saved during the pandemic the BoE will point to a much stronger economic recovery this year than it had previously anticipated.

The BoE should deliver a series of upgrades to its economic forecasts today and this encouraging outlook suggests the Bank may announce QE quantitative easing tapering. While this should come as no surprise, on the margin it should be GBP positive, particularly after the tough month of April for sterling, ING analysts said in a note.

Some analysts reckon the BoE will follow the U.S. Federal Reserve and back away from too much talk of tapering its stimulus extended last year.

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