All eyes on MPC – wait and see mode?

Current developments to be aware of:

• Q1 GDP was -0.2% so back in a technical recession, this puts a bit if a spanner in the works.
• More signals that we are entering a ‘sticky’ period of inflation (again).
• Recent ‘less dovish’ comments from various members.
• Fatty McDove Posen dropped his vote for QE as developments in data swayed him.
• MPC minutes said the UK economic health was much better than official data had suggested.

UK Inflation:

• March CPI was higher than expected at 3.5% up from 3.4%, mainly due to the increase in food and clothes.
• Oil remains stubbornly high.
• Recently strength of sterling will counter balance some of the imported inflation effects.

Policy:

• Data will be closely watched in the coming months. Negative GDP and stubborn inflation indicates that the BOE will probably extend their policy pause beyond May, whilst external factors run their course.
• Eurozone problems will be in the back of members minds, so don’t rule out a chance of more QE later on in the year.
• Rate hikes are very unlikely till 2013.

Currency:

• Currently greatly affected by other central bank policies (SNB, Fed, and BOJ) are likely to be adding safe haven buying into sterling, none of these look as though they are going to change any time soon, so sterling buying may continue.
• EUR/GBP is technically very oversold, chances are there will be a pullback but will be short-lived due to political uncertainties in the Eurozone.

Guru’s Thoughts:

• No QE: I would not take a position straight away, I would prefer to sit on the sidelines and wait for an extended move if there is one, then jump in.
• +25: possibly worth a small buy in short sterling and gilts, and selling cable. However, if short sterling goes ‘too far’ I will look to get short.
• +50: buy short sterling and gilt, sell cable.

Good luck!!