LCG Research Team: Monetary loosening in the UK following the country’s decision to leave the European Union is not bearing fruits at the anticipated speed.
Inflation in the UK accelerated at the stable pace of 0.6% year-on-year in August versus the 0.7% expected. Core inflation also remained unchanged at 1.3% year-on-year, versus 1.4% expected.
Although the latest figures did not meet market expectations, the rising import price pressure, due to a weaker pound, should gradually feed into the domestic price dynamics.
Today’s inflation read is benign and should not revive any speculations regarding any additional monetary stimulus from the Bank of England (BoE).
FTSE 100 stocks wrote-off 4% of their value on the week to September 12th. The firm appreciation in the pound and the persistent selling pressure on energy markets could encourage a certain capital flow from UK stocks to the corporate bonds, as the BoE will start purchasing corporate bonds on September 27th as part of its post-Brexit energy boost programme.
There will be three purchase operations per week- on Tuesdays, Wednesdays and Fridays.
The BoE aims to buy £10 billion worth of corporate bonds over the next 18 months.
According to the list of eligible bonds as of September 12th, the electricity (25%), consumer and non-cyclical (15%) and industrial and transport (14%) sectors make up the majority of the eligible list, while gas (+7%), energy (4%), property and finance (2%) sectors are at the bottom of the list.
The size of the eligible market and the sector shares will be updated on a monthly basis as well as the BoE’s holdings.