BoE to release statement as data worsens - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the BoE’s attempts to purchase GBP 1.17bn worth of Gilts failed yesterday with investors offering to sell GBP 1.12bn.

Key Quotes

“This was just the second attempt to buy Gilts since the QE announcement last week and will raise obvious questions over the ability of the BoE to implement the policy in full. It has never failed previously going back to the original QE programs that began in 2009. The attempted purchases were in the 15-year and longer segment of the market and that appears to have been part of the problem with entities unwilling to offload longer-dated paper.

A statement will be released at 9am London time. We do not expect anything more than a reassurance from the BoE that the policy can and will be implemented and low summer trading volumes will likely be blamed in large part.

There is no obvious impact on the pound from this although if concerns over the BoE’s ability to implement its easing policy persist, it could undermine confidence and weaken the pound if the economic data was to worsen over the coming months. The NIESR estimate for GDP in the three months to July slowed to 0.3% from 0.6% in June and implied a -0.2% reading for July alone. Trade data for June was also much worse than expected and suggested the potential for a revision lower to the 0.6% Q/Q Q2 GDP estimate. The pound is back above the 1.3000 level versus the dollar but that is unlikely to prove sustainable.”