Will the Bank of England Add More QE Despite Rosier Outlook for the UK Economy?

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Will the Bank of England Add More QE Despite Rosier Outlook for the UK Economy?

Will the Bank of England Add More QE Despite Rosier Outlook for the UK Economy?

A royal baby is on the way, Andy Murray has won Wimbledon and Britain is experiencing a mini heat wave.

In any other time we'd probably say we'd never had it so good, but this of course, my friends, is 2013, and I'd look a fool if I started to make statements like that!

The summer sun at least seems to be shining down on the UK economy, with a rare upgrade from the IMF and a wave of upbeat data since we last spoke.

The good news has been particularly flowing from Britain's services sector, although manufacturing is looking less rosy.

More Easing from The Bank?

Economists I play tennis with tell me that they are convinced growth in the second quarter is going to be significantly stronger than in the first, when Britain managed to scrape a 0.3% rise in GDP.

Growth could be around 0.6%, they say, although we'll have to wait until later this month for official confirmation.

Meanwhile after all the hype about the arrival of the Bank of England's new Governor Mark Carney, his term got underway with a whimper rather than a bang.

Details of his tube journey into work were more newsworthy than his first Monetary Policy Committee meeting, where the status quo was maintained.

Despite the slowly improving backdrop, I'm told we haven't necessarily seen the end of quantitative easing just yet and City sources tell me that the MPC is fairly likely to vote for another dose at its August meeting in a bid to give the fragile recovery some momentum.

Across the pond, the Fed doesn't seem to be able to make its mind up.

One minute it is causing wide-scale panic by hinting that stimulus is coming to an end.

The next, it is rowing back with dovish statements and the suggestion that ultra-loose monetary policy will be with us for the foreseeable, sending spread betting markets into a joyous spin.

Gold's Future Looks Bleak

In terms of commodities, it's starting to look as though gold is a busted flush despite a tentative rally over the last few days.

Investors are still liquidating holdings in exchange traded funds, which means it cannot last for long.

One City trader I know likened the situation to the gold price collapse of the early 1980s; indicating that there could be even sharper fall in gold to come.

This is questionable, particularly as the 1980s saw a rapid rise in US interest rates, a situation that we are unlikely to see repeated now.

Most other commodities, particularly the metals, are likely to continue to fall further.

Lots of new supply is coming onto the market across the world after years of heavy spending.

I wouldn't bet on any rebound for quite some time.

Concerns Over Suez Canal Adds Risk Premium to Oil

The oil price is likely to be more resilient, as economic indicators in the West are picking up and strife in Egypt keeps prices high.

Egypt produces less than one percent of the world's oil but worries about closure of the Suez Canal, which is admittedly unlikely, should support the price.

Analysts I know reckon a 'risk premium' of $5 to $10 will be included in the oil price until the situation become clearer.

So, with the exception of oil, the outlook for commodities remains gloomy.

That's all for now, I'm off to watch the Ashes.

Until next time...




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