GBP Falls as Bank of England Keeps Rates On Hold with Unanimous 9-0 Vote

Aug 1, 2019 (Econoday) – The August BoE MPC meeting again lived up to market expectations and left policy on hold. Bank Rate remains pegged at 0.75 percent and the ceiling on QE at £445 billion (of which gilts, £435 billion). The vote was another unanimous 9-0.

Sterling resumed a slide against the greenback that knocked it to 2 ½ year lows.

The MPC also opted to retain a tightening bias under which the Bank believes that ‘‘..increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2 percent target..”. However, compared with June, the bias has been modified slightly and higher rates now require both a smooth Brexit and some recovery in the global economy. In line with the Fed and a number of other central banks, the UK monetary authority would seem to be attaching increasing weight on international developments.

Under its central case scenario (smooth Brexit), CPI inflation is expected to climb on the back of excess demand and stand at 2.4 percent at the end of the 3-year forecast horizon. In other words, the current stance of policy and market pricing for borrowing costs in the future remain too accommodative to meet the medium-term inflation target. Interestingly, the Bank still sees excess demand even in the event of sterling appreciating by as much as 10 percent.

Brexit uncertainty again ruled out any policy shift today but the new Quarterly Inflation Report (QIR) still shows no quantitative analysis of what a no-deal outcome might mean for GDP and consumer prices. In line with previous meetings, the August minutes adhere to the official line that any monetary policy response to whatever shape Brexit finally takes will not be automatic and could be in either direction.

Apart from the amendment to the policy bias, there is little here for financial markets to chew on. The next move in official rates could be up or down but, in either eventuality, the chances are that it will not be for some time.


USA 
  • trade online

Join the discussion