Bank of England hikes interest rate by 25 bps

The Bank of England today decided to hike its policy rate by 25 basis points to 0.75 percent, as anticipated. The Monetary Policy Committee unanimously decided to hike rates. This was slightly unexpected as there were speculations that the previous doves would vote to keep the bank rate on hold. Today’s decision led to slight appreciation in the sterling initially but then dropped again later. The U.K. bond yields remained largely untouched.

In its new Inflation Report, the GDP growth projection remained unrevised. The unemployment forecast was downwardly revised a bit further and is now likely to level out at 3.9 percent in 2019. However, significantly, the inflation projection was revised a bit higher for 2018 and 2019, while it remained unchanged for 2020 at 2 percent. The projections are conditioned on a “gently rising path of Bank Rate implied by current market yields”. After the decision about 30 basis points higher Bank Rate is priced in at the end of 2019 and another 15 bps at the end of 2020, stated Nordea Bank.

According to the minutes statement, the BoE’s MPC continues to judge that the U.K. economy has quite a restricted degree of slack and repeated that “an ongoing tightening of monetary policy over the forecast period would be appropriate”. All members continued to see that any further rises in the interest rate were expected to be at a gradual rate and to a limited extent.

“We expect a rather slow economic development ahead and the downward trend in inflation to continue”, said Nordea Bank.

Moreover, the Brexit debacle appears not near a favourable outcome. There are no convincing arguments for pushing through further rate hikes in this environment. Therefore, the Bank of England leaves its policy rate unchanged through the remainder of this year and next year, added Nordea Bank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of British Pound was bearish at -75.5431, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 20.443. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex