For sterling and UK equities, the outcome hinges less on the vote itself, which is widely expected to be a hold, than on the tone struck by the MPC’s central bloc. A more hawkish emphasis on Middle East inflation risk would likely support the pound, given it would firm up expectations of tightening later this year, while weighing on UK equities, particularly rate-sensitive domestic sectors, as a higher rate path raises the discount applied to future earnings. Conversely, a central bloc that leans on the Decision Maker Panel’s easing wage and price data would likely be read as dovish, capping sterling’s upside and offering some relief to equities pricing in less near-term tightening. Goldman’s own focus is on gilts, where the bank believes the recent repricing toward higher yields may have run ahead of what the underlying data justifies, though it stresses this remains conditional on how the Middle East situation develops. A less hawkish surprise than the gilt market currently reflects could see yields ease back, with knock-on support for both equities and, more marginally, for a softer pound.
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Goldman Sachs expects the Bank of England to sit tight this week, but says the real signal for sterling, equities and gilts will be in how hawkish or dovish the tone sounds.
Summary:
- Goldman Sachs expects the Bank of England’s Monetary Policy Committee to take no action at this week’s meeting.
- The bank says it is watching the tone of comments from the MPC’s central bloc for clues on the path ahead.
- Goldman says a hawkish emphasis on the potential economic impact of re-escalating Middle East tensions could point to policy tightening before year-end.
- A less hawkish tone, potentially emboldened by Decision Maker Panel data showing continued easing in wage and price pressures, would raise the bar for any hike.
- Goldman’s investment view is that the gilt market’s repricing toward a more hawkish outlook may have gone too far, though it says this depends on how the Middle East situation evolves.
- The Bank of England’s decision and minutes are due Thursday, September 17, at 12:00 UK time (11:00 GMT, 7:00am US Eastern).
The Bank of England’s Monetary Policy Committee is expected to leave interest rates unchanged at its meeting this week, according to a note from Goldman Sachs, with the bank’s attention focused less on the vote itself than on the tone struck by policymakers. The decision and accompanying minutes are due Thursday, September 17, at 12:00 UK time, which is 11:00 GMT and 7:00am US Eastern.
Goldman says it is watching comments from the MPC’s central bloc closely for signs of what might come next. If policymakers emphasise the potential economic impact of renewed tensions in the Middle East, the bank says that could indicate policy tightening is in play before the end of the year. If instead the committee shows little sign of shifting its stance, potentially emboldened by Decision Maker Panel data pointing to continued easing in wage and price pressures, Goldman says any future hike would face a higher bar to clear.
On markets, the outcome carries implications beyond the interest rate itself. A hawkish tone would likely support sterling by reinforcing expectations of tightening later in the year, while weighing on UK equities as a higher rate path raises the discount applied to future corporate earnings, particularly for domestically focused, rate-sensitive sectors. A more neutral or dovish tone would likely have the opposite effect, capping the pound’s upside while offering some support to equities on reduced near-term tightening risk.
Goldman’s own published view centres on the gilt market, where it believes the recent repricing toward higher yields may have become too hawkish relative to the underlying data. The bank is careful to note that this assessment remains conditional on how the conflict in the Middle East develops, given its direct bearing on energy prices and, in turn, UK inflation.
One scheduling detail worth noting for market participants: unlike the Bank’s February, April, July and November meetings, September’s decision is not accompanied by a Monetary Policy Report or a press conference from Governor Andrew Bailey. The next scheduled press conference falls at the November 5 meeting, meaning markets will be parsing the written minutes alone for the tone Goldman and others are watching for, without the additional colour a press conference typically provides.
This article was written by Eamonn Sheridan at investinglive.com.