LONDON: The British pound edged higher on Wednesday after the Bank of England affirmed its commitment to end its emergency bond buying programme as scheduled on Friday, even as reports signalled they could extend purchases should market conditions warrant.
The Financial Times reported that the Bank of England (BoE) has privately indicated to bankers that it could extend bond buying beyond Friday’s deadline if market conditions demanded it, citing three sources briefed on the discussions.
The report was at odds with comments from BoE Governor Bailey on Tuesday, who publicly told British pension funds and other investors hit by the slump in bond prices that the central bank would end its emergency bond-buying programme as planned on Friday. “My message to the funds involved and all the firms involved managing those funds: You’ve got three days left now.
You’ve got to get this done,“ Bailey said at an event on Tuesday organised by the Institute of International Finance in Washington. By 0746 GMT, the British pound was up 0.1% against the dollar to $1.0969, snapping five days of losses.
It fell 0.9% on Tuesday after Bailey’s comments. “The market was very shocked by how decisive Bailey was on Tuesday,” said Michael Brown, head of market intelligence at Caxton, adding that he had expected the BoE to extend gilt purchases beyond Friday’s deadline.
“What the market wants is a commitment from the BoE saying they will backstop the gilt market in as much size as needed for as long as needed to ensure financial stability.
Sterling hits all-time low versus dollar, gets BoE’s attention
Until the market gets that I think any Sterling rallies are ripe to be sold into,“ Brown added.
Meanwhile, official data showed Britain’s economy unexpectedly shrank by 0.3% in August, hit by weakness in manufacturing and maintenance work in the North Sea oil and gas fields. Still, analysts did not expect weaker-than-forecast growth to deter the BoE from continuing to raise rates.
“Further rises in Bank Rate are warranted,” Lloyds Bank senior economist Hann-Ju Ho said in a note, even as he expects the economy to contract in the third quarter.
Money markets are fully pricing in a full-point rate rise from the Bank of England at its November meeting, according to Refinitiv data.
Looking ahead, the BoE’s Financial Policy Committee is scheduled to publish its latest financial policy summary and record at 0930 GMT.
Meanwhile, BoE policy makers Jonathan Haskel (0800 GMT), Huw Pill (1135 GMT) and Catherine Mann (1700 GMT) are all scheduled to speak later in the day.
Haskel and Mann both favoured a larger 75 basis point rate hike at the central bank’s last meeting, compared with the majority who voted for a 50 basis point rise.
Against the euro, the pound was little changed at 88.485 pence.
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