Rolls-Royce recovery faces new test as Bank of England signals inflation risk
Rolls-Royce has managed to reverse the short-term picture after several weak sessions. The next question is whether that momentum is strong enough to carry the recovery further.
1256.40
1289.40
Rolls-Royce SMR has launched a new Supplier Programme under which UK companies will be able to compete for contracts worth up to £1.4 billion over the next year. The company plans to source more than 70% of the Gwyndod project from within the UK.
The Bank of England added another layer to the external backdrop on September 17. Policymakers kept Bank Rate at 3.75%, but the 6–3 vote showed that three MPC members favored an increase to 4%. The Bank also warned that higher energy prices and the conflict in the Middle East had pushed inflation risks higher after UK CPI reached 3.1% in August.
GBX 1,450 becomes the key support after the breakout
Rolls-Royce did not follow the base-case scenario. Instead, the shares broke through the descending trendline and activated the alternative setup, which then played out as the price moved through the GBX 1,470 target near the 50-day SMA.
The stock is showing some weakness early in the September 18 session, making GBX 1,450 the key support to watch. A failure to hold above that level would sharply increase the risk of another test of GBX 1,420.
If GBX 1,450 holds, however, the recovery could extend toward the psychological GBX 1,500 resistance level.
Bank of England keeps macro pressure elevated
The Bank of England decision was more restrictive than the unchanged headline rate might suggest. One-third of the committee already favored another increase, while policymakers acknowledged that the energy shock had pushed inflation risks further to the upside.
That leaves Rolls-Royce with a mixed backdrop. Continued progress in SMR supports the longer-term fundamental case, but elevated rates and firmer expectations for UK monetary policy could keep risk appetite constrained in the near term.
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