The British Pound traded higher versus other major currencies (at the time this report was written) after today’s BoE rate decision saw interest rates unchanged at 0.50%, as was expected by economists. The Monetary Policy Committee (MPC) voted unanimously 9-0 to maintain the Bank rate at 0.50%, as in the previous meeting. The MPC also voted unanimously to maintain QE bond purchase at a total of £375b billion.
Looking into the Minutes statement, the MPC said inflation remains below target due to drags from energy and food prices, with core inflation subdued as well as a consequence of the past appreciation of sterling, weak global inflation and restrained domestic cost growth. The Committee emphasized the uncertainty surrounding ‘Brexit’, which is likely to have been a significant driver of the decline in sterling. The bank also said that the referendum may also delay spending decisions and depress growth of aggregate demand in the near term.
As was recently mentioned by DailyFX Chief Currency Strategist John Kicklighter, the BoE were expected to keep rates unchanged, after the Central Bank’s rate expectations cooled over recent months. This view was seemingly being expressed by the devaluation in the British Pound, with talk of ‘Brexit’ in the spotlight as well sending the currency to its lowest since 2009 against the US Dollar. BoE officials recently said they are weighing up all options including rate cuts and negative rates, but generally stressed that the next policy move will most likely be higher rates; commentary which was also stated in today’s meeting minutes. It appears that perhaps the market priced in a more dovish outlook for the BoE than the one the committee expressed, with all members voting to hold rates at current levels and none voting for a cut. This may have been counter to the prevailing market outlook effectively pricing out rate hikes in 2016, and the British Pound traded higher versus other major currencies.
