7 Days to go

For the Bank of England, Britain’s vote on its European Union membership next week means everything.

The nine-member Monetary Policy Committee, led by Governor Mark Carney, will announce its decision on interest rates at noon today. Officials will probably keep the key rate at 0.5 percent, having said they will interpret economic data surrounding the vote with extra caution.

As the risks of Brexit mount, U.K. rate-cut expectations are on the up. Traders are pricing in a greater than 25 percent chance that the BOE will cut borrowing costs by its July meeting, according to data compiled by Bloomberg using swaps on the sterling overnight index average.

For the Bank of England, Britain’s vote on its European Union membership next week means everything.

In the run up to the June 23 referendum, all eyes are on the U.K. currency, which is down almost 7 percent this year on a trade-weighted basis. One-month implied volatility has surged to the highest level since the financial crisis in October 2008.

There are also signs that the economy is taking a hit, though it’s hard to disentangle the Brexit effect from a broader slowdown. Industry surveys have weakened this year, and Markit says its PMI reports are currently pointing to growth of 0.2 percent this quarter, half the pace of the first three months of the year.

Other indicators show there’s still life in the economy. Employment growth has tapered off, though companies still added 55,000 jobs in the last three months. Also, wages have picked up, and while we’ve had false dawns before, annual pay inflation is now the fastest since September. Good news for consumers, one of the main drivers of growth in recent years.

7 days to go!

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