Inflation or Economic growth?
Today another major central bank will hold its monetary policy meeting and interest rate decision. The Monetary Policy Committee of the Bank of England will come together to decide how should central bank act in the current situation. And what is the current situation? Inflation is above 3% and growth is softer than expected. However, it seems early still to see any changes in the policy! And now the question is why? Why do we expect that the central bank will keep the 0.1% interest rates and current level of bond purchasing amount?
At the economic data, first of all, we can see inflation numbers growing, but same as FOMC members, MPC members also repeatedly saying that it is transitory. CPI in August raised to 3.2%, the highest level in almost a decade and way more than 2% central bank target which we saw that in July as well. As we could see in the latest outlook, the central bank sees inflation to reach 4% by the end of 2021.
On the other hand, the labor market in the UK seems got back to its pre-pandemic levels. The UK had one of the fastest and best vaccination programs, which strongly helped the reopenings and people to get back to their jobs. Still reaching something is different from holding the situation. One of the main reasons for reaching this employment level is stimulus packages, so if the government and central bank want to withdraw them, first of all, have to make sure that how stable is the situation.
And finally, the supply chain. When we are talking about the economy, it is not just one sector, it is the chain of different sectors, suppliers, and buyers that creating it. Unfortunately in a pandemic, some parts of this chain have been broken, and it tasks time to recover. It is not this issue of even the British economy, it is a global issue, and we have to give it time to fully recover.
As a reaction in the market, with this expecting policy, GB100 is supposed to take advantage of that and continue the newly formed uptrend. 7,000 is the key support and as long as footsie holding this level, the uptrend is more likely there to stay for a longer time. RSI at 60 and increasing OBV trend line, with price above main MA lines, technically also supporting the bulls.
