Bank of England keeps policy rate unchanged at 0.75 pct

The Bank of England kept its policy rate on hold at 0.75 percent today, as was expected. Furthermore, the voting record indicated that all MPC members voted to keep the rates unchanged, implying that there was little change in the MPC’s urgency over the next hike.

However, the view stayed that as long as the economy continued to perform consistent with expectations, further rate hikes might be required to bring inflation back towards its 2 percent target. The Committee, in August had agreed widely that this was in line with a couple of quarter-point rate hikes in the forecast horizon. This view is in line with the MPC’s longstanding mantra that the pace of future hikes is expected to be ‘limited and gradual’ in nature, a view seen in current interest rate market pricing, where the next hike is not fully discounted until the fourth quarter of 2019.

Overall, the MPC’s assessment was widely the same compared to last month, stated Lloyds Bank in a research report. The Committee noted that uncertainty had increased – since the August meeting, especially around the U.K.’s withdrawal from the EU. Nevertheless, this was balanced against a more positive assessment of near-term developments.

The Bank of England nudged up its ‘nowcast’ expectations for the third quarter GDP growth to 0.5 percent from 0.4 percent previously and acknowledged the strong rebound in wage growth in the latest labor market report.

“Our central forecast embodies two more quarter-point rate increases over the next two years. Notwithstanding Brexit uncertainty, if capacity constraints continue to build, the BoE may well be convinced to raise interest rates sooner than current market pricing suggests (Q4 2019) and potentially ahead of our own view of August next year”, added Lloyds Bank.

At 15:00 GMT the FxWirePro's Hourly Strength Index of British Pound was slightly bullish at 67.0578, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -15.8182. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex