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Bank of England keeps interest rate on hold

Bank of England keeps interest rate on hold

Bank of England’s policy announcement today sounded a more hawkish note, as expected. Even if the Bank Rate was kept on hold at 0.5 percent, the decision was not unanimous, with two external committee members voting in favor of an immediate quarter-point rise to 0.75 percent. The slight alteration in tone comes against the backdrop of the U.K.’s economic resilience and rising evidence of domestically generated inflation pressures.

The MPC did not send an explicit signal about its near-term policy intentions. However, it is not that surprising. In September of 2017, coming just ahead of the November rate hike and faced with a relatively unprepared market, the MPC felt compelled to push markets towards the possibility of a near-term rate hike, noted Lloyds Bank in a research report. They did this by implying, “some withdrawal of monetary stimulus is likely to be appropriate over the coming months”. But given that market expectations of a May rate are already elevated, it was thought that there was no requirement for the Committee to guide the markets any further towards expecting a May rate, stated Lloyds Bank.

Still, the MPC continued to repeat that the timing and degree of future rate increases would rely on the trade-off between underpinning growth and curtailing inflation pressures, at a time of ongoing Brexit uncertainty. But, with the Bank of England lowering their expectations for the first quarter GDP growth, because of weather-related effects – and assuming that any deceleration would be temporary – implies that the MPC has lowered the bar to hike interest rates at the May MPC meeting.

Source: FXWire Commentary

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