With markets continuing to reel from Britain’s exit from the European Union in June, all eyes are on the Bank of England (BoE) as stock investors are looking to see what new monetary policies will be implemented in order to help prevent a potential economic downturn that could limit growth if consequences become apparent. The hope has always been that the bank would present a plan to create a stable fiscal policy capable of helping the economy maintain the status quo.
While the economy is not expected to show dramatic improvements near term, it is unlikely we will see significant declines in generalized growth trends.
However, as the BoE’s most recent monetary policy statement says, any new policies will only serve as short-term solutions to the country’s underlying problems, and this could be something that leads to bearish downturns in the pound/dollar exchange and the FTSE100 stock market index. Essentially, the only significant aspect of the monetary policy that was revealed was during the BoE’s last meeting minutes was the fact that interest rates will not be changed; they will remain low, following suit with a global trend in most developed economies.
Policy expectations
At this stage, most analysts agree that the monetary policy that the Bank of England implements will have difficulties in staving off impending recessions and the bank has decided it needs to see more of the fallout of the Brexit event in order to arrive at a longer-term direction. This means looking at real-life data in the contextual landscape before the BoE can decide on a more complex plan of action.
For those trading in popular currency pairs, it will be important to assess the average net worth by age -- as this will be a key determinant of GDP growth in the U.S. economy. If we see stalling on the British side of the equation, this could lead to a certain amount of uncertainty within the domestic economy for the foreseeable future as there are still directional influences that have not been articulated by the bank.
In terms of prices, Britain’s historic vote to leave the European Union has led to a sharp and significant downturn in the British Pound (GBP), and this is expected to have amarked impact in the purchasing power in foreign markets for many consumers.
Domestic investors will likely consider these factors when determining whether to use traditional safe havens or to allocate to other long-term investments. External economies are much more cautious about investing in the British economy now that they do not have the security net that was the European Union. These areas will continue to be important data points for market analysts.
BoE defining economic direction
As a result, a significant amount of investment has left the country, and this could negatively impact trade balance figures in ways that extend to potentially negative surprises in annual GDP values. The BoE reduced interest rates to historic lows in 2009, so it is still entirely unclear with regard to when we will start to see a tightening of policy.
The Bank of England still has options left in terms of stimulus programs that can be implemented if markets start to see material differences in growth rates. This could turn out to be what is needed to ease the transition between membership in the European Union and independence from the European Union. Until then, investor sentiment and forex trend valuations in the FTSE100 could be the best indicator of where the BoE will be forced to travel in their next policy direction.
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