- BOE Leaves Rates Unchanged But May Reduce Stimulus
The U.K. Monetary Policy Committee, led by the Bank of England Governor, Mark Carney, voted to maintain 0.25 percent interest rate as predicted by Investors King Ltd.
Seven members of the committee voted to hold rates at a record low while the remaining 2 members, Ian McCafferty and Michael Saunders, voted for a 25 basis point increase. Signaling possible rates hike in coming months.
Policy makers projected that gradual withdrawal of monetary stimulus may be necessary for coming months if the economy grows as expected. This is to return rising inflation to 2 percent target, according to the minutes of the meeting.
Also, while the decision to leave the European Union weighs on the economic outlook, weak pound continues to pressure prices, and expected to exceed 3 percent by next month, even with the unemployment rate at a 42-year low.
Just as forecast in the forex weekly outlook, the pound climbed 0.5 percent to $1.3278 after the report was published. Further validating Investors King projection on rates hike going forward.
Policy makers reaffirmed that monetary policy could be tightened more than market rates imply but at a gradual pace and limited extent. This indicates stronger possibility than the previous meetings and suggests it might be soon with inflation rate poised to exceed 3 percent.
Inflation rate climbed from 2.6 percent in July to 2.9 percent in August.
The odds of raising rates rose from 44 percent last week to 80 percent today. This will further strengthen our EURGBP and GBPAUD positions as explained here.
However, the current pound attractiveness is expected to be temporary, especially with the ongoing Brexit negotiation and global uncertainties.
