BOE Doesn’t Cut Rates This Time, MPC Votes Unchanged
Markets were expecting a dovish BOE,but they sounded less so than in the previous meting and the GBP is surging
The Bank of England has been neutral last year but it shifted to dovish after the general elections in the UK last December. The uncertainty was keeping them on hold, but once things became clear and the UK is heading out of the EU for good, as well as a weak economy, the BOE turned dovish.
Some economists were expecting a rate cut this month and odds were 50/50. But, they decided to remain on hold once again. Below are the BOE meting details:
- BOE leaves bank rate unchanged at 0.75%; votes 7-2
- Prior 0.75%
- Votes 7-2 vs 6-3 expected
- Asset purchase target £435 billion
- Corporate bond target £10 billion
- Guidance for limited, gradual tightening has been dropped
- Haskel and Saunders dissented, voting to cut the bank rate by 25 bps
- Growth outlook revised lower, inflation seen below target until end of 2021
So, they are keeping things on hold for now, although markets still anticipate a rate cut, which is postponed back to August. BOE Chairman Mark Carney also made some comments, which sounded more positive.
- UK recovery appears to be on track
- Survey data suggests UK economic activity has picked up sharply since the election
- It is less of a case of ‘so far, so good’, than ‘so far, good enough’
- It is important for hard data to follow through
- Global growth is picking up, caution is warranted
- Coronavirus is a reminder on the need to stay vigilant
- Recovery in UK growth and inflation are not yet assured
- Domestic price inflation appears to be muted
- Core inflation has slowed
- Margin of slack has been greater than previously estimated
The GBP is taking advantage of the less dovish BOE, especially after comments from Mark Carney. GBP/USD is around 100 pips higher now, as odds of a rate cut soon decline.
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