The Bank of England (BoE)’s latest Quarterly Bulletin was published several days ago and now that the dust has settled it is possible to take out key points which may be of significance for traders.
Uncertainty Over Prospects for Productivity Growth
The National Living Wage has been raised, giving employees an incentive to train their lowest-paid workers to be more productive and therefore more profitable. This type of investment could stimulate the economy. However, it might also result in businesses becoming reluctant to hire new employees – which would cause stagnation and actually result in a reduction in productivity.
The Effects of the Financial Crisis Are Still Being Felt
The BoE notes that wage growth slowed during the financial crisis of a decade ago, while unemployment increased. This situation has been rectified somewhat, with unemployment dropping. However, pay growth has not yet reached the levels which it attained pre-crisis.
Trade in Sterling Remains Stable
The BoE now collects granular information on pound transactions and this data is being used to inform the sterling overnight index average (SONIA). Based on this benchmark, the average value of sterling transactions has been £50 billion per day, with a stable headline rate. What this means to traders is that the pound remains popular in the various markets in which it is traded.
The other good news is that the BoE intends to use this new data to regularly output summary statistics of sterling money market activity, which should increase market transparency. And an increase in transparency could result in a greater volume of trades.
The Sterling Likely be Bolstered by Interest Rate Hikes
The BoE confirmed that it would be keeping interest rates where they are. However, there is a strong suggestion that they will be increased in the near future, as soon as May. And just to show how strong the appetite is for this, two of the nine members eligible to vote on the issue actually would have preferred an immediate hike. The impact on traders will be that they can now look out for a rise in the pound to reflect this upcoming increase. There could even be a second interest rate rise on the cards – however, analysts are divided on this point.
How Traders Could Benefit
If you are a trader, you might want to make careful note of these and other points from the BoE’s Quarterly Bulletin. This could even be a good opportunity to take these market trends and apply them to your trading strategies. Through forms of trading like spread betting it is of course possible to profit regardless of whether a market rises or falls.
Watching for Future Updates
As mentioned above, the BoE intends to publish data regularly to shed even greater light on the market. It could be worth watching out for these updates and making sure that you don’t miss the next Quarterly Bulletin. However, there is still much to be studied in the 2018 Q1 Bulletin and plenty for traders to take away.